Fitch affirms revises Atlanta courthouse project bond outlook to positive

BY SourceMedia | MUNICIPAL | 09/26/23 04:18 PM EDT By Thomas Nocera

Fitch Ratings revised to positive from stable the outlook on $32 million of refunding revenue bonds associated with the construction of Atlanta's city courthouse as revenue streams continue a post-pandemic recovery.

The outlook change applies to $32 million of tax-exempt certificates of participation issued by the Georgia Municipal Authority in 2016 to refund a 2002 issuance that helped finance the construction of a new municipal courthouse in downtown Atlanta.

Also on Friday, Fitch simultaneously affirmed Atlanta's general obligation bond rating at AA-plus and retained its stable outlook.

Bond-financed construction began on the 200,000-square-foot Lenwood A. Jackson Sr. Justice Center in 2003 as the city sought to expand its main municipal court in expectation of increasing use over the next 25 years.

The 2016 refunding, like the original issuance, is backed solely by dedicated revenues from court fees and fines distributed annually from Atlanta's general fund budget.

In 2021, Fitch downgraded the 2016 refunding bonds from AA-minus to A-plus as courthouse revenues dropped dramatically during the height of the of COVID-19 pandemic. The city lacked backup borrowing plans to cover the debt, Fitch said at the time.

The outlook boost to positive came after a review of the city's unaudited revenue report for fiscal 2023 showed annual distributions to the bond's debt service fund were up 10%, to $18.3 million in 2023 from $10.7 million in fiscal 2020.

The decision also factored in a comfortable cushion provided by debt service reserve fund coverage 4.95x annual debt requirements, Fitch said.

The figure remains at only 76% of 2019 revenue total and Fitch said the bond rating fell below Atlanta's GO based on the "historic volatility" of municipal court revenues.

They remained confident, though, that economic and population growth would increase demand on the city's public services, including the courthouse, and keep revenues flowing into the future.

As the city maintains the ability to raise or lower rates associated with court fees and fines, Fitch said it expects officials would take action to keep pace with inflation and cost pressures and "ensure the operation and maintenance of the court system supporting an 'a' revenue growth prospect assessment."

In the rating report, Fitch also affirmed an AA-plus with an outlook stable on bonds issued by the Atlanta Downtown Development Authority, Atlanta Urban Residential Finance Authority, Atlanta Urban Redevelopment Agency and Atlanta Public Safety and Judicial Facilities Authority, and other revenue bonds backed by Atlanta's full faith and credit.

Atlanta's fiscal year 2024 budget passed in June is its largest ever, a $790 million spending plan featuring bumps in affordable housing investments, education, and capital projects.

The city has seen strong revenue improvement from COVID-19 lows, from an actual revenue of $386.2 million pulled in fiscal 2022 to an expected $847 million total for fiscal 2023. However, a slowdown is expected however, with anticipated revenue or fiscal 24 expected to drop to $790 million, according to the adopted budget.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.