Fitch Affirms National Aquarium in Baltimore, Maryland 'A+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 19, 2003

Fitch Ratings affirms the 'A+' rating assigned to $14 million Maryland Industrial Development Financing Authority, Maryland variable-rate bonds, (National Aquarium Baltimore Facility) series 2002A and $20 million Maryland Industrial Development Financing Authority, Maryland fixed-rate bonds, (National Aquarium Baltimore Facility) series 2002B bonds. The Rating Outlook remains Stable.

The series 2002A bonds are secured by a direct-pay letter of credit (LOC) issued by Sun Trust Bank. A Fitch short-term rating was not requested. The series 2002B bonds ($20 million), issued in a fixed rate-mode, are a general obligation (GO) of the Aquarium and its separately incorporated, though related, National Aquarium in Baltimore Foundation (Foundation). Other than the series 2002A and 2002B bonds, no additional debt is outstanding.

The long-term 'A+' rating continues to reflect the Aquarium's track record of positive operating performance, sizable resource base, and historically favorable attendance patterns. Aquarium attendance remains an importance credit variable as a result of the nearly 61% of unrestricted operating revenue typically generated by visitation related sources. For fiscal 2002, the confluence of heightened national security alerts; a weakened economy; the D.C. sniper attacks; and a maturing exhibition resulted in a 6% decline in attendance -- the largest single year decline reported by the museum over the last five years -- to 1,531,540.

Visitation levels for FY 2003 are also expected to be flat or down slightly from FY 2002, equaling approximately 1.5 million. Damage from Hurricane Isabel and construction in and around the facility are identified as key causes for the flattening attendance for FY 2003. In most years, the Aquarium's annual attendance equals or exceeds 1.6 million visitors.

While the magnitude of the attendance declines from historical averages (1.6 million) is somewhat disconcerting, Fitch recognizes the unique nature of the circumstances behind the demand pressure in both fiscal 2002 and 2003, and does not believe the near term downturn to be indicative of weakening demand for the facility. Rather, Fitch expects the Pier 3 expansion and other visitor related enhancement projects, as well as the Aquarium's prominent location within the Baltimore Inner Harbor, to allow the Aquarium to return to or surpass historic attendance levels beginning in 2005. An improving national economy and stabilizing homeland security picture will also have positive credit implications.

Recent operating challenges have impacted Aquarium annual performance to some degree, with operating margins in both fiscal year 2002 and 2003 below the five-year average margin of 2%. Management is, however, expecting the Aquarium to close out fiscal year 2003 with an operating profit which will approach $1 million, and expects a slow return to more profitable operating levels following project completion during FY 2005.

Liquidity for the Aquarium, nonetheless, remains sound with fiscal year 2002 available funds (defined by Fitch to include unrestricted cash and investments and temporarily restricted cash and investments) equaling a healthy $43 million or approximately 129% of operations and 124% of outstanding debt ($34 million). Maximum annual debt service of $2.2 million represents a fairly high 6.8% of total operating expenditures; though Fitch believes the stability of operating performance and lack of additional debt plans to be major mitigating factors.

The credit risks identified by Fitch going forward include the execution and ultimate completion of the extensive, $112 million multi-year (2001-2007) Master Plan (Plan); the predictability and stability of the Plan's funding sources; and the timely completion of the Pier 3 expansion and related initiatives. Of the $112 million total cost, roughly 24% of funds are derived from the City of Baltimore ('A+'/Stable), State of Maryland ('AAA'/Stable), and Federal Sources; 39% from Aquarium and Foundation Reserves; 14% from private fundraising; and the remainder from net bond proceeds. To date, no changes in the structure of Master Plan funding has occurred, and Fitch does not anticipate major reallocations among private and public sources. The Pier 3 Expansion is on-target and on-budget to open during April 2005.

The stable outlook expects the Aquarium will continue to generate operating surpluses and maintain or increase balance sheet liquidity despite the temporary fall-off in demand. The outlook also anticipates attendance levels returning to or exceeding long-run average levels (1.6 million) beginning in FY 2005. A failure of visitation levels to rebound following the completion of the Master Plan projects may have negative implications for the rating and/or outlook.