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LTC 397-2022 S&P Credit Ratings for Parking Bonds397-2022 M IAMI BEACH OFFICE OF THE CITY MANAGER LTC # LETTER TO COMMISSION TO : FROM: DATE: Mayor Dan Gelber and Members of the City Commi&sion Alina T. Hudak, City Manag ~ September 21, 2022 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 & Poor's 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 has been revised from negative to stable. 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. 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. ~ ATH/JW Letter to Commission S&P Credit Ratings for Parking Bonds September 21, 2022 Page 2 of 2 Rating Agency Credit Scale S&P Moody's Rating Description AAA Aaa Prime AA+ Aal AA Aa2 High grade AA-Aa3 A+ Al Upper medium Investment-grade A A2 A-A3 grade BBB+ Baal Lower medium BBB Baa2 grade BBB-Baa3 BB+ Bal Non-investment BB Ba2 grade speculative BB-Ba3 B+ Bl B B2 Highly speculative B-B3 Non-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 C D I In default S&P Global 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 Credit Highlights Outlook Credit Opinion Related Research WWWS TANDARDANDPOORS .COM/RATI NGSDIR ECT SEPTEMBER 19, 2022 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 in surance. Credit Highlights A+/Stable Affirmed A+(SPUR)/Stable Affirmed • S&P Global Ratings revised the outlook to stable from negative and affirmed its 'A+' long-term rating and underlying rating (SPUR) on Miami Beach's parking revenue bonds . • The outlook revision reflects our view of the parking system's strong activity recovery to near pre-pandemic levels and our expectation that the system will maintain financial metrics consistent with a strong financial risk profile despite possible issuance of an estimated $20 million in additional debt in fiscal 2023 to fund the 72nd Street Community Complex parking garage project. Security 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 roughly $88.4 million in debt outstanding: $58 .2 million in the series 2015 parking revenue bonds and $30.1 million in the 2020 loan with JPMorgan. While the 2020 loan is an obligation of the city's general fund, we include the debt in our analysis because the debt service is supported by net parking revenue and reported as a liability of the parking system fund in the city's audited financial statements. A debt service reserve funded at maximum annual debt service provides additional support to the bonds. Credit overview The rating reflects the parking system's strong enterprise risk and financial risk profiles and a positive holistic analysis adjustment to accurately reflect the overall creditworthiness of the system, which is relatively large and diverse, with high usage rates. Furthermore, it has exhibited generally resilient demand across a range of economic conditions as a result of its location within the desirable Miami Beach area, which has extremely strong economic fundamentals and is a popular destination for tourists. 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; WWWSTANDARDANDPDDRS CDM/RA TINGSDIRECT SEPTEMBER 19, 2022 2 Summary: Miami Beach; Parking • 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; • 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; and • DSC and debt to net revenue that we expect to remain strong and very strong at more than 1.25x and less than l0x, respectively. Partly offsetting the above strengths, in our view, are the parking system's: • Modest exposure to competition from private parking operators and ridesharing services; • Potential fluctuations in demand from tourist trends; and • Additional debt plans, with an estimated $20 million in new debt issuance in fiscal 2023. The parking system has demonstrated a strong recovery, with fiscal 2022 year-to-date parking revenues for the nine months ending June 30 , 2022 at 94% of revenue for the same period of 2019 and garage utilization at approximately 85% of 2019 pre-pandemic levels . We have analyzed the fiscal 2022 year-to-date actual financial results compared to budget, as well as the fiscal 2023 budget, and expect that financial metrics will return to pre-pandemic levels in fiscal 2022 . In addition , despite the potential for an estimated $20 million in parking bonds issued to fund a portion of the $30 million 72nd Street Community Complex parking garage project in fiscal 2023, we believe the parking system will maintain financial metrics consistent with a strong financial risk profile. More specifically, we expect that the system will maintain strong debt service coverage (DSC; S&P Global ratings calculated) of more than 1.25x, very strong debt capacity with debt to net revenue below l0x, and a very strong liquidity position with more than 400 days' cash on hand and 26% of debt. Environmental, social, and governance We analyzed the parking system's environmental, social, and governance risks relative to its market position , management and governance, and financial performance. Elevated health and safety concerns, which we consider a social risk factor, are abating, as reflected in the system's activity recovery, but we believe Miami Beach's parking system still has moderately negative exposure, given the substantial effect on system use and revenues at the onset of the COVID-19 pandemic. As a result, volatility in parking demand stemming from future health and safety events could have similar effects on demand, particularly given the system's reliance on tourism-based demand. We also view physical risks as moderately negative in our credit rating analysis given the parking system's coastal location in southern Florida, which makes it more susceptible to severe weather disruptions and catastrophic events like hurricanes and flooding. However, Miami Beach has adopted specific code requirements to address exposure to these risks and bid specifications for the new project (if and when built) included resiliency aspects through building materials and vegetation enhancements. We consider the parking system's governance credit factors to be neutral in our credit rating analysis. WWW.S TANDARDANDPOORS COM/RATINGSDIRECT SEPTEMBER 19, 2022 3 Summary: Miami Be ach ; Parking Outlook The stable outlook reflects our expectation that the parking system will maintain financial metrics consistent with a strong financial risk profile given strong parking revenue and demand recovery trends that we believe are sustainable. Downside scenario We could lower the rating if parking utilization at the system weakens materially or ifwe believe that financial metrics, particularly DSC and debt to net revenue, will be sustained at levels inconsistent with a strong financial risk profile . Upside scenario We do not expect to raise the rating in the next two years given our expectation that the parking system will maintain financial metrics consistent with a strong financial risk profile . Credit Opinion S&P Global Ratings believes that economic momentum will likely protect the U.S . economy from recession in 2022 but that economic effects are likely in 2023 with supply chain disruptions worsening as the weight of extremely high prices weakens purchasing power and as aggressive Federal Reserve policy increases borrowing costs. Our U.S . GDP growth forecast is 2.4% for 2022 and 1.6% for 2023 (compared with the 2.4% and 2.0%, respectively, that we forecasted in May 2022), and although our baseline signals a low-growth recession we believe the likelihood of a contraction or technical recession is rising, to 40% (35% to 45% band). The wider band reflects increased uncertainty over the Russia-Ukraine conflict. Supply chain disruptions, worsened by the Russia-Ukraine conflict and the China slowdown, remain the largest stumbling blocks for the U.S. economy. As inflation expectations become more entrenched, extreme price pressures will likely last well into 2023. We expect that the unemployment rate, which stood at 3.6% in May, slightly in excess of the pre-pandemic level, will remain near that rate until early 2023 before rising to 4.3% by the end of 2023 and 5.0% by the end of 2025 as the economy slows. The Federal Reserve is now likely to push rates from zero at the beginning of the year to 300 basis points by year end and 3.50% to 3.75% by mid-2023 . We believe that it will keep monetary policy tight until inflation decelerates and nears its target in second-quarter 2024. We expect that the Fed will start to cut rates in third-quarter 2024. Our lower GDP and inflation forecasts for 2023 and 2024 reflect this more aggressive policy stance. (See "Economic Outlook U.S . Q3 2022 : The Summer Of Our Discontent," published June 27, 2022 , on RatingsDirect.) Related Research Through The ESG Lens 3.0: The Intersection Of ESG Credit Factors And U.S. Public Finance Credit Factors, March 2, 2022 Certain term s 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.capitaliq.com. All ratings affected by thi s rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box lo cated in the left column. WWW.S TANDARDANDPOORS COM/RATINGSDIREC T SEPTEMBE R 19, 2022 4 Copyright© 2022 by Standard & Poor's Financial Services LLC. All rights reserved . 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