CHF Collegiate Housing Island Campus LLC, AL Bond Rating Lowered To 'BB+' On DSC, Occupancy Pressure; Outlook Negative

SAN FRANCISCO (S&P Global Ratings) Jan. 31, 2019--S&P Global Ratings lowered 
its long-term rating to 'BB+' from 'BBB-' on New Hope Cultural Education 
Finance Corp., Texas' series 2017A and taxable series 2017B student housing 
revenue bonds (the bonds) issued on behalf of CHF Collegiate Housing Island 
Campus LLC (CHF--Island Campus). CHF Collegiate Housing Island Campus LLC is a 
limited liability company, whose sole member is the Foundation, an Alabama 
not-for-profit corporation. The bonds were issued to finance the acquisition 
costs of the Miramar facilities on the Texas A&M University--Corpus Christi's 
(A&M--Corpus Christi or the university) Island Campus. The outlook is 
negative. 

"The rating downgrade and negative outlook on the bonds reflect our opinion of 
management's projected debt service coverage of 1.08x for fiscal 2019, which 
is below the rate covenant of 1.2x, and our expectation of continued pressure 
on occupancy at the project as a result of recent declines in enrollment at 
A&M--Corpus Christi," said S&P Global Ratings credit analyst Mary Ellen 
Wriedt.

The rating reflects our view of these risks:

  • Occupancy rates at the Miramar facilities of 88% in fall 2018; 83% as of Dec. 21, 2018; and 84% in spring 2019 that are falling short of projections of 95% for the academic year;
  • Debt service coverage (DSC) that is projected by management at 1.08x for fiscal 2019, below the 1.2x rate covenant given the lower-than-projected occupancy; and
  • Significant competition from both on-campus housing, at the university's Momentum Campus, and off-campus housing in the area, with several off-campus developments opening in recent years, a majority of which are geared toward students.
The rating also reflects our assessment of these credit strengths:

  • The good connection between the university and the project, demonstrated by the on-campus location, as well as by the university's active role in marketing new housing as part of its own housing stock and eventual ownership of the project once the bonds are repaid, and
  • The bonds' adequate security features, including the nonrecourse security pledge of net project revenue, a debt service reserve fund (DSRF) fully funded at maximum annual debt service (MADS), a 1.2x annual DSC covenant, a 1.2x additional bonds test, and business-interruption insurance requirements.
The negative outlook reflects our expectation that the project's revenue could 
remain challenged by underperforming occupancy, rendering it difficult to 
generate cash flows sufficient to meet debt service requirements. In addition, 
we expect the university to stabilize and grow enrollment from current levels.

We could consider a lower rating if lower-than-targeted occupancy results in 
net project operating revenue that leads to DSC below 1.0x or if the fully 
funded DSRF is not maintained. In addition, we might consider a lower rating 
if future on-campus housing plans were to differ significantly from current 
plans; if off-campus housing competition were to grow even more significantly 
than current expectations; or if the university were to experience significant 
declines in undergraduate enrollment, housing demand, or occupancy.

We do not expect to raise the rating within the two-year outlook period, but a 
higher rating could be considered if DSC increases to levels commensurate with 
a higher rating.

Approximately $84 million in bonds are outstanding.
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