S&P: Ridgecrest Student Housing LLC, AL's 2016A-B Revenue Bonds Rated 'A-'
"The rating reflects our view of the project's strong connectivity with the university, growing balance sheet, strong occupancy rates, and solid operations leading to adequate pro forma maximum annual debt service coverage," said S&P Global Ratings analyst Luke Gildner.
The university assisted during the start-up phases of the housing project by lending RSH $12.4 million and received payments subordinate to debt service and all other required expenses. In fiscal 2014, RSH paid, in full, the remaining balance of the note. In addition, while the university is not liable for payment of the bonds should RSH be unable to meet the covenant requirements, it has also covenanted to notify the university and request a grant or loan to meet basic rent or additional rent payable per the financing lease. We view UA's role as the project's operational manager as another credit strength. As such, Ridgecrest's debt is viewed as indirect debt of the university and is factored into our view of the university's debt profile.
The series 2016 refunding bonds are being issued for interest cost savings and will be used to fully refund the series 2008 bonds, which were used to construct the housing projectRSH is a single member limited liability company formed to transact business associated with providing student housing on or near the campus of UA. RSH does not have any other assets besides the housing project. The 1831 Foundation is the sole member of RSH.
Ridgecrest student housing consists of Ridgecrest North and Ridgecrest South, which have a combined 419 units and 1,583 beds. Occupancy has been greater than 97% since opening in 2007. Given the growing enrollment at the University of Alabama, we expect this occupancy to remain strong. For fall 2016, management reports total occupancy in excess of 99% for the Ridgecrest facilities.
The stable outlook on the housing bond ratings reflects our expectation that during the next two years, the project operations will have strong occupancy levels and generate debt service coverage at or in excess of current levels.
Credit factors that could lead to a negative rating action during the two-year outlook period include low occupancy rates or a significant debt issuance in the next two years. We could also consider a negative rating action if debt service coverage falls to a level that is no longer consistent with the rating category.
At this time, we do not believe a positive rating action is likely during the outlook period because it is still somewhat early in the life of the project; however, one could be considered if RSH continues to grow unrestricted reserves to levels commensurate with a higher rating.