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LTC 208-2021 S&P Credit Ratings for Parking BondsMIAMI BEACH OFFICE OF THE CITY MANAGER LTC # 208-2021 LETTER TO COMMISSION TO: Mayor Dan Gelber and Members of the ity Commission FROM: Alina T. Hudak, City Mana DATE: May 14, 2021 SUBJECT: S&P Credit Ratings for Parking Bonds The purpose of this L TC is to advise the City Commission regarding the results of a recent credit review completed by Standard & Poors Global Ratings on the City's Parking revenue bonds. • S&P has affirmed the current A+ rating on the City of Miami Beach's Parking enterprise revenue bonds. The outlook remains negative. Given the significant financial challenges to the City from the impacts of COVID-19, we are proud that we have been able to successfully maintain our current ratings for our Parking Bonds. These ratings serve as an independent validation of all the important and often difficult actions taken to date by the Administration and the City Commission to balance the City's budget. As the City's economy continues to improve, we expect the negative outlook to be revised in the near future. Please find attached a rating agency credit scale for your information as well as a copy of the credit rating report. Should you have any inquiries regarding this information, please contact John Woodruff, Chief Financial Officer. ...%% Letter to Commission S&P Credit Ratings for Parking Bonds May 14, 2021 Page 2 of 2 Rating Agency Credit Scale S&P Moody's Rating Description AAA Aaa Prime AA+ Aa1 AA Aa2 High grade AA- Aa3 A+ A1 Upper medium Investment-grad e A A2 A- A3 grade BBB+ Baal Lower medium BBB Baa2 BBB- Baa3 grade BB+ Bal Non-investment BB Ba2 grade speculative BB- Ba3 B+ B81 8 B2 Highly speculative B- B3 NVon-investment CCC+ Caal Substantial risks grade ccc Caa2 Extremely AKA high-yield bonds speculative AKA junk bonds ccc- Caa3 Default imminent cc Ca with little prospect c for recovery e D I In default S&PGlobal Ratings RatingsDirect Summary: Miami Beach; Parking Primary Credit Analyst: Kayla Smith, Centennial+ 1 (303) 721 4450; kayla.smith@spglobal.com Secondary Contact: Nora G Wittstruck, New York+ (212) 438-8589, nora.wittstruck@spglobal.com Table Of Contents Rating Action Negative Outlook Related Research WWW STANDARDAND)POOHS COM/RA ENGSOIREC' MAY13,2021 1 Summary: Miami Beach; Parking Credit Profile Miami Beach pkg Long Term Rating Miami Beach pkg (BAM) Unenhanced Rating Many issues are enhanced by bond insurance. A+/Negative A +(SPUR)/Negative Affirmed Affirmed Rating Action S&P Global Ratings affirmed its 'A+' long-term rating and underlying rating (SPUR) on Miami Beach's parking revenue bonds. The outlook is negative. The parking system consists of more than 17,000 spaces distributed among 12 garages and attended lots, and about 9,000 on-and-off-street meters. Net revenue from all but three city-owned parking facilities secures the parking system revenue bonds outstanding, but our analysis considers the total parking system fund, including nonpledged facilities. The parking system has $90.9 million in debt outstanding: $58.5 million in the series 2015 parking revenue bonds and $32.4 million in the 2020 loan with JPMorgan. which refunded the series 2010AB parking revenue bonds. While the 2020 loan is an obligation of the city's general fund, it is still paid for by and reported as a liability of the parking system fund in the city's audited financial statements and therefore included in our analysis. A debt service reserve funded at maximum annual debt service provides additional support to the bonds. Credit overview The rating reflects our view of the system's recent recovery in parking demand and management's actions that have mitigated near-term effects on financial metrics, including decreased near-term debt service requirements from the 2020 refunding, reduced operating costs, and very strong liquidity, which further enhances the system's credit stability. However, the negative outlook reflects our expectation that activity at the Miami Beach parking facilities may be slower to rebound to pre-pandemic demand given the potential for depressed tourism trends, particularly relative to international visitors. Additionally, the system's financial metrics could come under pressure depending on continued revenue recovery, future transfers out to the general fund, and increasing debt service requirements. The ratings also reflect our opinion of the parking system's strong enterprise risk profile and very strong financial risk profile. Our strong enterprise profile assessment reflects a moderately large parking system exhibiting generally resilient demand characteristics prior to the pandemic and relatively high usage rates as a result of its situation within the desirable Miami Beach area, which has extremely strong economic fundamentals and is a popular destination for tourists and those who live in the area. Offsetting these characteristics are moderate competition from private operators and ridesharing services, potential fluctuation in demand from tourist trends, and temporary disruptions from occasional severe weather events. As of WWW S'AND)ARDANPOORS COM/RAIINGSDIEC MAY 13, 2021 2 Summary: Miami Beach; Parking February 2021, monthly parking revenue was down 20% compared with February 2020 and down 38% year to date. While we expect parking demand to continue to recover with the rollout of the vaccine and easing COVID-19 restrictions, we still see some uncertainty regarding the recovery of parking demand and its impact on net revenue. The financial risk profile reflects the pledged parking facilities' strong financial performance with debt service coverage of l.34x per S&P Global Ratings' calculation in fiscal 2020 (versus the l.9x rate covenant calculation) and projected debt service coverage of 2.05x in 2021 as a result of debt service savings from the refunding of the series 201 OAB parking revenue bonds and reduced operating expenses, offsetting parking revenue declines. Debt to net revenue and liquidity have historically been very strong, but debt to net revenue was 14.4xin fiscal 2020 and we expect it to remain above !Ox for at least 2021 because of weakened parking demand. We expect the system to maintain more than 400 days' cash on hand, which, in our view, offsets risks from severe weather events that could temporarily disrupt operations. Our financial risk profile assessment also considered the additional revenue from the convention center garage that opened in 2020, the city's plan to significantly reduce the amount of transfers it receives from the system, and a lack of additional debt needs. Key credit strengths, in our view, are the parking system's: Favorable market position, reflecting its moderately large size, good rate-setting flexibility, and generally strong demand characteristics from serving the Miami Beach area; and • Extremely strong service area economic fundamentals, which include favorable income levels as measured by GDP per capita, a large population, and above-average expected population growth, despite the service area's elevated unemployment as a result of the pandemic; and • Very strong management and governance, reflective of detailed and thorough standards for operational and financial goals and a staff that we consider experienced and capable in operating the parking system. Key credit weaknesses, in our view, are: A material decline in the system's parking demand, with parking revenue down 33% in fiscal 2020 as a result of stay-at-home and social-distancing restrictions associated with the COVID-19 pandemic, and The system's modest exposure to competition from private parking operators and ridesharing and potential fluctuations in demand from tourist trends. Environmental, social, and governance factors We analyzed the parking system's environmental, social, and governance risks relative to its market position, management and governance, and financial performance. We consider the system exposed to elevated health and safety social risks related to lower tourism trends, particularly international travelers, as the rollout of the vaccine is prolonged in some countries outside the U.S. Although the easing of activity restrictions and domestic tourism have led to increasing demand, activity may not recapture pre-pandemic highs for a prolonged period. Furthermore, we believe the environmental risks for Miami Beach are elevated based on its coastal location in southern Florida exposing it to severe weather-related events that could disrupt operations and lead to temporary closures of facilities depending upon the severity of the event. We consider the parking system's governance risks in line with our view of the sector standard. WWW SIAN)ARDAN0POORS COM/RATINGS0IRE CI MAY 13, 2021 3 Summary: Miami Beach; Parking Negative Outlook Downside scenario We could lower the rating if we come to believe that parking usage at the facilities will remain depressed for longer than expected, or if the system returns to transferring out surplus revenue to the city, which, combined with rising debt service requirements, results in weaker long-term financial metrics. Return to stable scenario We could revise the outlook to stable with more clarity on the trajectory of the parking facilities' usage recovery and stabilization of activity, and if we come to expect that the system's financial metrics will remain consistent with the rating. Related Research Through The ESC Lens 2.0: A Deeper Dive Into U.S. Public Finance Credit Factors, April 28, 2020 Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors. have specific meanings ascribed to them in our criteria. and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitalia.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW SANOARDANPOORS COM/RATNGSDIRECT MAY 13, 2021 4 Copyght @ 2021 by Standard & Poor's Financial Services C. 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