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���������ֳ� - Austin - 22 Apr 2025: ���������ֳ� has upgraded the rating on the outstanding $46.30 million in student housing revenue and refunding bonds series 2015 from the Health, Educational and Housing Facility Board of the City of Chattanooga, TN on behalf of CDFI Phase I, LLC (CDFI) to 'BBB+' from 'BBB'.

The Rating Outlook is Stable.

RATING RATIONALE

The upgrade reflects the CDFI's robust Debt Service Coverage (DSCR) ratios, which are expected to average 1.7x under ���������ֳ�'s rating case. CDFI's strong financial metrics are supported by solid student housing demand and rental pricing flexibility. The upgrade also reflects ���������ֳ�'s evolving methodology of assessing student housing projects, which considers the strategic importance of student housing properties and the relative stability in the sector's high occupancy levels, in addition to ���������ֳ�'s reassessment of risks and financial metrics relative to comparable student housing projects.

The rating also reflects the project's essential role as a part of the University of Tennessee at Chattanooga's (UTC) student housing needs as well as steady enrollment and housing demand. CDFI has a track record of increasing rates and maintaining near maximum occupancy rates despite competition from the addition of non-CDFI housing to accommodate modest UTC enrollment growth. The bonds are non-recourse to UTC and the University of Chattanooga Foundation, Inc. (UCF), a private corporation that manages the private endowment of UTC.

KEY RATING DRIVERS

Revenue Risk - Volume - Midrange

Solid Demand and University Connectivity

UTC's overall stable enrollment supports consistent near-full occupancy of the project housing facilities. Volatility is mitigated by the project's location on campus and essentiality to UTC as it currently accounts for almost half of UTC's on-campus housing stock. However, the project's exposure to a single university exposes the transaction to concentration risk. Management of the project is integrated with university and foundation management, and facilities are directly operated as part of the university's housing system. Demand constraints due to competition or economic factors related to overall university student costs are somewhat mitigated by requiring all freshmen to live on campus unless their home is within a 45-mile radius from the UTC campus.

Revenue Risk - Price - Midrange

Moderate Rental Rate Flexibility

The project is primarily reliant on student housing rental charges and related fees CDFI maintains independent control to establish rental rates, which ���������ֳ� views favorably. ���������ֳ� expects CDFI will raise bed rates annually by low to mid-single-digit percentages in line with historical increases.

Infrastructure Dev. & Renewal - Midrange

Older, but Well-Maintained Facilities

Although the facilities are over 20-years old the project is well maintained and is undergoing a major refurbishment, which is expected to be completed in September 2025. 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.

Debt Structure - 1 - Stronger

Conservative Debt Structure

The security and structural features of the CDFI debt obligations are similar to other investment-grade student housing transactions. The fully amortizing senior debt is fixed rate with level debt service payments. Liquidity is supported by a debt service reserve equal to over 12 months of debt service and a capital reserve. The bonds are nonrecourse to UTC and the foundation. However, these organizations are incentivized to support the project if stressed and injected funds during the pandemic.

Financial Profile

Debt service coverage in fiscal 2025 remained healthy at 1.8x. The 10-year average DSCR through 2034 is 1.7x in ���������ֳ�'s rating case, which stresses occupancy to 92% and assumes rental rate increases of 1% annually starting in 2027. CDFI increased rates by 5% in fiscal 2025 and is planning for a 4% rental rate increase in fiscal 2026, which is considered in ���������ֳ�'s rating case.

Net debt to cash flow available for debt service (CFADS) was 4.4x in fiscal 2024 and steadily declines to 2.9x in 2029 in ���������ֳ�'s rating case.

PEER GROUP

While ���������ֳ� does not publicly rate student housing projects with similar asset and risk profiles to CDFI, other 'BBB+' rated peers have DSCRs ranging from 1.6x to 1.9x 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;

--���������ֳ�'s rating case DSCRs narrowing to 1.6x on a sustained basis due to weaker demand or additional borrowings.

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

--Sustained ���������ֳ� rating case DSCR at or above 1.8x.

SECURITY

The 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 the University of Tennessee at Chattanooga and to the University of Chattanooga 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

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. ���������ֳ�'s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ���������ֳ�'s ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.

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, v1.4.2 (1)

ADDITIONAL DISCLOSURES

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

ENDORSEMENT STATUS