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���������ֳ� - New York - 19 May 2023: ���������ֳ� has affirmed the 'BBB' rating on the outstanding $51.85 million in student housing revenue and refunding bonds series 2015 from the Health, Educational and Housing Facility Board of the City of Chattanooga, Tennessee on behalf of CDFI Phase I, LLC. The Rating Outlook is Stable.

RATING RATIONALE

The rating reflects solid enrollment and student housing demand characteristics at the University of Tennessee at Chattanooga (UTC) coupled with the University of Chattanooga (UC) Foundation's demonstrated history of timely support for Campus Development Foundation Inc. While CDFI does compete with other student housing options, its leasing rates are at near maximum levels and have shown positive trends over time even with new non-CDFI bed additions developed to accommodate UTC's modest current enrollment growth. ���������ֳ� expects a continuation of solid enrollment and student housing demand and pricing flexibility, with debt service coverage ratios (DSCR) under the ���������ֳ� Rating Case to average 1.5x on a sustained basis.

KEY RATING DRIVERS

Solid Demand and University Connectivity - Revenue Risk (Volume): Midrange

UTC's overall stable enrollment supports consistent near-full occupancy of the project housing facilities. Volatility is partly mitigated by the project's location on campus and essentiality to UTC as it accounts for 47% of UTC's on-campus housing stock. Management of the project is integrated with university and foundation management, and facilities are directly operated as part of the university's housing system. However, the bonds are nonrecourse to UTC and the foundation, but these organizations have strong incentives to support the project if stressed.

Moderate Rental Rate Flexibility - Revenue Risk (Price): Midrange

The project is primarily reliant on student housing rental charges and related fees, and project bed rates are expected to increase by approximately 5% year over year over the next school year. While CDFI's facilities are price competitive to all other housing options, there could be some constraints due to competing housing options or economic factors related to overall university student costs. This is mitigated by requiring all freshmen to live on campus unless their home is within a 45-mile radius from the UTC campus.

Well Maintained Facilities - Infrastructure Development and Renewal: Midrange

While the South Campus facilities opened between 2001 and 2004, CDFI has made routine reinvestments throughout their operational history to maintain a like-new condition for students. Capital reserves are set aside on an annual basis to ensure adequate maintenance and upkeep of the project without needing additional borrowings for renewal projects on existing facilities.

Conservative Debt Structure - Debt Structure: Stronger

The security and structural features of the CDFI debt obligations are generally common for investment grade student housing transactions. The fully amortizing senior debt carries a fixed rate of interest and level debt service payments. Liquidity is supported by a debt service reserve equal to over 12 months of debt service and a capital reserve.

Financial Profile

With a revenue base of nearly $12 million, debt service coverage in fiscal 2022 remained healthy at about 1.5x with added benefits of approximately $394 thousand in contributions from the UC Foundation, which is not a common occurrence. From a more standardized operating cashflow standpoint, DSCR remained 1.5x in fiscal 2022. ���������ֳ�'s Rating Case assumes a 92% occupancy level and inflationary rate adjustments through 2028 leading to average coverage of 1.5x. Leverage was 6.2x in fiscal 2022 but evolves down to a more moderate 3.8x by 2028.

PEER GROUP

While ���������ֳ� does not publicly rate student housing projects with similar asset and risk profiles to CDFI, other 'BBB' category rated peers show coverages in the 1.5x-2.0x range and minimal volatility throughout periods of stress.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

--A material decline or elevated volatility in enrollment at the university.

--Occupancy rates below 90% on a sustained basis and/or inability to implement timely rate increases.

--Debt service coverage narrowing at or near the 1.3x coverage level on a sustained basis due to weaker demand or additional borrowings.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Sustained DSCR at or above 2.0x utilizing the rating case could lead to positive rating action, though such improvement is unlikely based on the current operating and financial profile.

Best/Worst Case Rating Scenario

International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit /site/re/10111579.

CREDIT UPDATE

CDFI serves an essential part of the student housing needs at UTC, and in ���������ֳ�'s view, shows resilient performance over time even with other housing options at or near the central areas of UTC's downtown campus. Following a decline in occupancy from the coronavirus pandemic, 2022 occupancy remained strong at approximately 99%. Going into Fall 2023, CDFI management has indicated that they expect to be fully occupied in Fall 2023 with the need for additional beds.

As a result of the strong occupancy levels, fiscal 2022 revenues increased by 12% over fiscal 2021. Operating expenses increased by 25% over fiscal 2021, primarily due to the effects of lower than typical expenses incurred during fiscal 2021 due to cost saving measures implemented during the coronavirus pandemic. The university also contributed $394 thousand towards the foundation in fiscal 2022 to support the debt service coverage cushion. With the funding, DSCR came in at 1.5x in fiscal 2022. On a cashflow operations basis, DSCR was also approximately 1.5x in fiscal 2022, which remains in line with historical coverages. Fiscal 2023 revenues are expected to increase by approximately 6.6%, and operating expenses are expected to increase by approximately 2.2%.

CDFI is entering the fifth year of a six-year full renovation plan. The plan includes roof replacement, exterior repair and sealing, HVAC replacement, appliance replacement and full interior renovations. All immediate maintenance needs were handled in the first year of the project. Management expects the total project cost to be about $46 million, and plans to finance the renovations through the University Foundation and future foundation funds.

FINANCIAL ANALYSIS

In ���������ֳ�'s Base Case, ���������ֳ� adopted estimates by the foundation for fiscal year 2023 and 2024. Following 2024, rental rates are assumed to increase at approximately 2% per year, while expenses increase at 2.5% per year. Occupancy levels are held at 95% from fiscal year 2022 through 2027. This case leads to minimum DSCR of 1.6x and an average DSCR of 1.6x, without any assistance from the UC Foundation or the university beyond fiscal 2021. Leverage declines to 3.3x by fiscal year 2028.

In ���������ֳ�'s Rating Case, occupancy rates are stressed to 92% from fiscal year 2023 to 2028. Rental rates are assumed to increase 1% per year from 2025 through 2028, and expenses are stressed to grow at 3% per year. In this case, DSCR averages 1.5x. Leverage declines to 3.8x by 2028. No draws on the UC Foundation or assistance from the university is required in any year. ���������ֳ� has also conducted a breakeven sensitivity case, by decreasing occupancies in order to meet 1.0x coverage. Under this case, occupancies could decline to approximately 76% and still meet all debt service requirements.

SECURITY

The series bonds are secured by and payable solely from gross project revenues related to the student housing facilities. Additional security includes a cash funded debt-service reserve fund and a mortgage on the facilities. Bonds are non-recourse to UTC and to the UC Foundation.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on ���������ֳ�'s ESG Relevance Scores, visit

Additional information is available on

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• GIG AST Model, v1.3.1 (1)

ADDITIONAL DISCLOSURES

• Dodd-Frank Rating Information Disclosure Form
• Solicitation Status
• Endorsement Policy

ENDORSEMENT STATUS