OREANDA-NEWS. Fitch Ratings has affirmed the 'A+' rating on approximately $211.9 million of outstanding revenue bonds issued by the Fulton County Development Authority on behalf of Georgia Tech Athletic Association (GTAA).

The Rating Outlook is Stable.

SECURITY

Unsecured general obligation of GTAA, payable from all legally available funds.

KEY RATING DRIVERS

INSTITUTIONAL ALIGNMENT: GTAA is strategically important to and aligned with the Georgia Institute of Technology (Georgia Tech), as GTAA administers Georgia Tech's comprehensive intercollegiate athletic program. Georgia Tech is not obligated to repay debt of the separately incorporated GTAA, but the organizations have overlapping governance and institutional goals.

STRONG FUNDRAISING: GTAA benefits from strong philanthropic support, bolstered by the development activities of Georgia Tech and the Georgia Tech Foundation (the foundation). GTAA exceeded its $250 million fundraising goal as part of Georgia Tech's $1.5 billion comprehensive campaign concluding in calendar 2015.

DEFICIT-GENERATING OPERATIONS: GTAA generates sizeable GAAP-based operating deficits, which are not uncommon for a stand-alone, athletics-focused auxiliary enterprise. Strong fundraising and sound investment management have offset operating deficits and bolstered GTAA's net assets over time.

HIGH DEBT BURDEN: GTAA maintains a high pro forma debt burden as a result of added leverage in recent years and use of non-level, back-loaded debt structures. The high debt burden is partly offset by GTAA's lack of additional debt plans and its robust fundraising ability.

RATING SENSITIVITIES

RELATIONSHIP WITH GEORGIA TECH: The rating is highly sensitive to maintenance of the Georgia Tech Athletic Association's (GTAA) strategic alignment with the Georgia Institute of Technology (Georgia Tech) and the organizations' overlapping governance and institutional priorities.

GEORGIA TECH's GENERAL CREDIT: The rating is further supported by Georgia Tech's strong credit characteristics. Any change to Georgia Tech's credit profile would likely affect GTAA's rating.

CREDIT PROFILE

Established in 1934, GTAA is a nonprofit organization charged with administering the athletic programs of Georgia Tech. While legally separate from Georgia Tech, GTAA is a strategically important component of Georgia Tech's operating profile and functions as its collegiate athletic department. Georgia Tech's athletic facilities are owned by the Board of Regents of the University System of Georgia and leased to GTAA under long-term contracts at nominal cost. GTAA manages the facilities and is responsible for all operating and maintenance costs.

GTAA maintains a close relationship with Georgia Tech and is an integral part of its overall identity. As a major public research university, Georgia Tech enjoys consistently strong student demand and interest in intercollegiate athletic programs administered by GTAA, principally football and basketball. GTAA's connection to Georgia Tech, demonstrated through the alignment of their mission, institutional goals and management, is a key credit strength. Under no legal obligation, Georgia Tech has in the past provided operational support to GTAA when needed. Georgia Tech's strong financial profile is characterized by solid student demand; consistently positive operations; a significant level of balance sheet resources, inclusive of foundation-held resources; robust fundraising; and a low debt burden.

GTAA's Fairly Diverse Revenues Tempered by Operating Deficits

GTAA's revenue base is concentrated in athletics-related activities but is somewhat diversified by source. Operating revenue sources include distributions from its athletic conference (Atlantic Coast Conference, or ACC), seat and ticket sales, advertising and sponsorships, student athletic fees, and gifts. Membership in the ACC provides for lucrative media contracts and corporate advertising and sponsorship agreements. GTAA's ACC distributions accounted for 41.2% of fiscal 2015 operating revenues and increased over 40% from 2014 to $27.3 million, mainly due to a broadcasting agreement with ESPN and the College Football Playoff structure. Premium lease fees and ticket sales made up the second and third largest sources at 14.4% and 13.3%, respectively.

GTAA consistently generates GAAP-basis operating deficits. However, operating performance improved slightly in fiscal 2015 due partly to the ramp-up in conference revenue, which offset continued cost pressures from higher debt service and student services. GTAA's operating results, while negative, tend to fluctuate due to changes in teams' home schedules and activities in a given year.

Deficit-generating operations are partially supported by distributions made by the foundation from GTAA's endowments. Expense pressures may continue, as recent NCAA legislation expanding schools' flexibility to offer support to student-athletes will likely raise costs related to scholarships and services. GTAA is implementing cost containment measures that, coupled with continued growth in conference revenue, are expected to maintain operating deficits at a manageable level.

Fitch considers GTAA's historical operating deficits manageable in light of its strong fundraising and close alignment with Georgia Tech. GTAA exceeded its $250 million fundraising goal as part of Georgia Tech's comprehensive campaign. Strong fundraising and reasonable investment returns have offset GTAA's operating deficits on average over the past decade, with net assets growing moderately over that period.

Adequate Financial Cushion

GTAA's balance sheet liquidity is adequate and continued to improve during fiscal 2015. Available funds, defined by Fitch as cash and investments not permanently restricted, totaled $86.7 million as of June 30, 2015, covering a solid 115% of operating expenses. Available funds covered a modest 37.8% of debt, not atypical for a stand-alone university auxiliary enterprise. GTAA's investments are managed by the foundation, along with the endowments of Georgia Tech and its various related foundations. Alternative asset classes make up 46.7% of the approximately $1.56 billion total portfolio managed by the foundation.

High Debt Burden; No Additional Debt Plans

GTAA's debt profile includes mostly (96%) fixed-rate debt, but includes two $30 million bullet payments on its series 2012 bonds in fiscal years 2020 and 2023, creating refinancing risk over the medium term. Fitch believes GTAA maintains market access for refinancing and adequate financial flexibility to manage the various risks associated with bullet maturities. Further, GTAA has capacity for repayment of the bullets from its available resources in the event they are not refinanced.

GTAA has a high debt burden, similar to many university auxiliary enterprises. Maximum annual debt service (MADS) of about $42.3 million is expected to occur in fiscal 2020 and represents a very high 64.1% of fiscal 2015 operating revenues. As MADS includes a $30 million bullet payment in fiscal 2020, Fitch also analyzed average annual debt service (AADS). Fitch estimates AADS through fiscal 2043 to be approximately $14 million, resulting in a much lower but still high 21.7% debt burden.

Debt service coverage from net operating income is below 1x due to GTAA's GAAP-based operating deficits. However, payment of debt service is supported on an annual basis by endowment distributions and the ongoing receipt of pledged gifts, reflecting GTAA's ability to fundraise for athletics-related capital projects. Fitch is currently comfortable with the level of coverage because of the historical endowment payouts, track record of successful fundraising, and close association with Georgia Tech.

GTAA has no additional debt plans at this time, and Fitch considers GTAA's debt capacity extremely limited. Additional debt, while not planned, would negatively pressure the rating.