Franchise Opportunities in Fort Worth, TX

Fitch Ratings - Austin - 13 May 2022: Fitch Ratings has affirmed an 'AA' rating to the following Fort Worth, Texas obligations:

--$81.8 million special tax revenue bonds, series 2017A;

--$133.06 million special tax revenue bonds, taxable series 2017B;

The Rating Outlook is revised to Stable from Negative.

Pledged revenues consist of the city's combined 9% HOT, incremental state hotel occupancy and sales and use taxes collected within a specified project financing zone, and airport shared revenues. The bonds are also payable from certain anticipated venue-generated tax revenues. The pledge of the venue-generated tax revenues in relation to the series 2017A bonds is limited to 5% of debt service in a given year.

The revision of the Outlook to Stable from Negative on the special tax revenue bonds reflects significant improvement to the resilience cushion of pledged revenues, after recovering from a sharp pandemic-driven decline. While fiscal 2021 pledge revenues barely lag pre-pandemic levels, pledged revenues are trending upward and are expected to exceed pre-pandemic levels by the close of fiscal 2022 (September 30 FYE). The city reports available reserves at more than $42 million or almost 3.0x maximum annual debt service [MADS]). The 'AA' rating reflects the currently solid resilience cushion and strong longer-term pledged revenue growth prospects.

Strong Long-Term Revenue Growth Prospects: Pledged revenue growth had been strong prior to the pandemic, with a 10-year CAGR of HOT revenues (83% of pledged revenues) through fiscal 2019 of more than 7%. Fitch expects the pace of growth to continue to accelerate from recently suppressed levels as normal business activity has largely resumed and additional growth to city's resource base continues.

Solid Resilience: The bonds' debt service cushion was negatively affected by the contraction in the hospitality and event sectors following the onset of the pandemic. The city has experienced a fairly swift and significant rebound in these sectors and Fitch expects the pledged revenue stream to exhibit solid resilience and sensitivity to economic swings consistent with the pre-pandemic assessment. The city does not anticipate additional leveraging, as the project has been completed.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

--A sustained recovery in the local hospitality sector and pledged revenues that largely restores the pre-pandemic resilience cushion.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

--A prolonged and/or weak recovery in the city's tourism sector and pledged revenues that would erode the currently solid resilience cushion.

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 https://www.fitchratings.com/site/re/10111579.

The city, like many other jurisdictions, experienced a sizable loss in tourism-generated income due to the pandemic-driven business and entertainment venue closures. Pledged revenue sources for the city's special tax revenue (or tourism tax) bonds experienced a 37% decline from fiscal years 2019 to 2020. Since then, pledged revenues increased by more than 20% from fiscal years 2020 to 2021 and continue to improve throughout fiscal 2022. The city's commercial activities have rebounded and its entertainment venues are being booked.

Management has confirmed that hotel occupancy rates are reaching pre-pandemic levels and since FYE 2021, construction on 12 new hotels has been completed. As of May 2022, 10 hotels are currently under construction and slated to open by the close of fiscal year 2023. According to representatives, leisure demand is on the upswing.

Dickies Arena and the Fort Worth Stock Yards are fully operational and the city has hosted several entertainment and sporting events. Looking forward, the city is slated to host several concerts and national sporting events which are expected to draw thousands of visitors into the city.

Given its position as an anchor to one of the nation's largest, most diverse and expanding MSA economies, residents have access to a strong employment base.

Continued residential, retail and commercial development has led to year-over-year increases in the city's taxable assessed valuation (TAV). Fiscal 2022 TAV at $87.4 billion reflects a 29% increase over fiscal 2019 TAV. Key contributors to the regional economy and employment base include AMR Corporation (parent of American Airlines), Lockheed Martin, Alcon Labs, Bell Textron, NAS Fort Worth Joint Reserve Base among others.

The city's growth prospects are strong and there is plenty of developable land remaining within the city limits; and, its extra-territorial jurisdiction is sizable and provides opportunity for future annexation and growth. Officials don't project buildout for several decades.

HOT revenues make up the vast majority of pledged revenues (about 83%) so Fitch's analysis focuses on trends from this source.

Pledged HOT revenues registered strong pre-pandemic growth, with a 10-year CAGR through fiscal 2019 of 7.1%. Fiscal 2019 HOT revenues totaled $30.9 million, up 5% from the prior year; total pledged revenues were $39.8 million, up 16% from fiscal 2018. The pandemic-induced economic contraction produced a sharp 38% drop in fiscal 2020 HOT revenues to $19.3 million.

Due to marked improvement in the local economy, the city's tourism and entertainment sectors have registered a strong uptick in activity. Fiscal 2021 pledged HOT revenues at $23.7 million reflect a 24% increase over the prior year. Including the additional pledged sources, pledged revenues totaled $28.6 million, roughly 72% of pre-pandemic pledged revenues. Based on projections provided by management, all pledged revenue sources are expected to exceed pre-pandemic revenues by FYE at an estimated $46.3 million. Longer-term revenue growth prospects remain strong.

The 2021 pledged revenue total generates a solid MADS coverage cushion of 1.59x that could withstand a more than 37% decline to 1.0x MADS. The available cash balances currently totaling $42 million provides additional support. The 'AA' rating on the series 2017A and series 2017B bonds incorporates this analytical conclusion, also factoring in the inherent volatility of pledged revenues.

None

In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from Lumesis.

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

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.

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

The ratings above were solicited and assigned or maintained by Fitch at the request of the rated entity/issuer or a related third party. Any exceptions follow below.

Fitch’s international credit ratings produced outside the EU or the UK, as the case may be, are endorsed for use by regulated entities within the EU or the UK, respectively, for regulatory purposes, pursuant to the terms of the EU CRA Regulation or the UK Credit Rating Agencies (Amendment etc.) (EU Exit) Regulations 2019, as the case may be. Fitch’s approach to endorsement in the EU and the UK can be found on Fitch’s Regulatory Affairs page on Fitch’s website. The endorsement status of international credit ratings is provided within the entity summary page for each rated entity and in the transaction detail pages for structured finance transactions on the Fitch website. These disclosures are updated on a daily basis.

Medical City Fort Worth was the only hospital in Fort Worth that received an A for safety standards in recent ratings of U.S. hospitals by a national watchdog group.

Spring 2022 Hospital Safety Grades were released Tuesday by the Leapfrog Group. The nonprofit organization bi-annually assigns letter grades to general hospitals across the country by measuring errors, accidents, injuries and infections, and systems in place to prevent harm.

Texas ranked 22nd for hospital safety nationally, a downgrade from the fall, when the state ranked 16th in the country.

The Leapfrog Hospital Safety Grade is assigned whether the hospital voluntarily reports data to Leapfrog or not. The majority of data used to calculate the safety grade comes from the Centers for Medicare and Medicaid Services. Hospitals can provide additional information about safety measures through the annual Leapfrog Hospital Survey.

In Texas, 230 hospitals received safety grades. Leapfrog graded 32% of Texas hospitals an A, compared with 35% in the fall.

Here’s how Fort Worth hospitals stacked up, and what that means for you and others seeking health care in the city.

Medical City Fort Worth continued its high safety grade streak and was the only hospital in the city to get an A. Rates of infection and safety problems were near the national average, and it received perfect scores on staff as well as preventing surgical problems and errors.

“As our health care system continues to feel the strain of the pandemic, I thank the workforce and leadership of Medical City Fort Worth for sustained commitment to patient safety, day in and day out,” said Leah Binder, president and CEO of The Leapfrog Group, in a statement. “An ‘A’ Safety Grade is an outstanding achievement, and one that is not possible without a 24/7 effort by the entire health care workforce to protect patients from harm. This community should be proud.”

According to the spring 2022 Hospital Safety Grades, the following two Fort Worth hospitals received B grades:

These Fort Worth hospitals received a C safety grade by Leapfrog:

Texas Health spokesperson Kimberly Walton said “patient safety and quality are the highest priority” and that they may have received these grades because they chose not to participate in the Leapfrog Hospital Survey.

“Several years ago, Leapfrog changed their reporting methodology from being dependent on publicly available data to requesting additional information from hospitals, which is not independently verified. We did not participate in their additional requests, as this activity does not provide direct value to the patients we serve,” Walton said. “Because this grading system includes both participating and non-participating entities, it highlights the variability in Leapfrog’s methodology and the grades it assigns. For the most recent reporting cycle, Texas Health Harris Methodist Hospital Hurst-Euless-Bedford did provide the additional data and their score improved two letter grades from a D to a B. Thus, we are evaluating participating more fully in the future as part of our commitment to being as transparent as possible. We continue to be highly focused on initiatives that directly impact patient care, from Reliable Care Blueprinting to other patient safety initiatives that are part of our journey in becoming a high reliability organization.”

Baylor Scott & White All Saints Medical Center - Fort Worth was the only Fort Worth hospital that received a D grade based on the national rankings. That’s lower than in the past three years, during which it received B and C grades. It had more infections and safety problems than the average hospital and was near the worst for surgery problems. The hospital also scored low on error prevention practices.

Spokesperson Matthew Olivolo said: “We are committed to providing safe, high-quality care to every patient who enters our doors, and we closely measure our performance across a variety of metrics that we believe are strong indicators of safe, high-quality care. There are a number of factors that influence a hospital’s grade from Leapfrog. One significant factor is participation in Leapfrog’s proprietary survey — which our hospital does not participate in at this time. Nothing is more important than being a trusted provider to those we serve.”

The Leapfrog Hospital Safety Grade uses more than 30 national performance measures from the Centers for Medicare & Medicaid Services and the Leapfrog Hospital Survey. Leapfrog says those measures produce a letter grade that indicates a hospital’s overall performance in keeping patients safe from preventable harm and medical errors. Nearly 3,000 general acute-care hospitals across the nation receive a safety grade twice annually, in the fall and spring.

The five main scoring categories that measure a hospital’s safety are:

While data for “A” hospitals shows they do a good job preventing errors, you should never refuse care in an emergency because of a hospital’s safety grade. When you have time to research, use hospitalsafetygrade.org to check whether a hospital scores well on these medical care basics:

Here’s how to prepare for your hospital stay:

Leapfrog recommends taking these steps during your hospital stay:

If you see an error made in the hospital, you should:

Today, Fort Worth becomes the first city government in the United States to mine Bitcoin. This pilot program, launched by the Office of Fort Worth Mayor Mattie Parker and the City of Fort Worth in partnership with Texas Blockchain Council, recognizes the exponential growth of the blockchain and cryptocurrency industries while advancing Fort Worth’s goal of becoming a leading center of tech and innovation.

Beginning today, the S9 Bitcoin mining machines will run 24/7 in the climate-controlled Information Technology Solutions Department Data Center located at Fort Worth City Hall, where they will be housed on a private network to minimize security risk. The program is made possible through the donation of three machines from Texas Blockchain Council, a nonprofit association made up of companies and individuals that work in Bitcoin, Bitcoin mining, crypto and blockchain industries. The donation was formally accepted by the Fort Worth City Council today.

“With blockchain technology and cryptocurrency revolutionizing the financial landscape, we want to transform Fort Worth into a tech-friendly city,” Parker said. “Today, with the support and partnership of Texas Blockchain Council, we’re stepping into that world on a small scale while sending a big message – Fort Worth is where the future begins,” the mayor added. “These small but powerful machines mark Fort Worth’s larger commitment to becoming a leading hub for technology and innovation.”

“The Texas Blockchain Council is thrilled to be part of this first-of-its-kind pilot program as the City of Fort Worth begins mining Bitcoin. By starting small to learn as they go, Fort Worth is positioning itself to be the bitcoin mining capital of Texas. The state as a whole has already established itself as the bitcoin mining capital of the world,” said President and Founder of Texas Blockchain Council Lee Bratcher. “We are grateful for the support of several of our member companies, specifically, Luxor Technologies and Rhodium Enterprises, as they provided strategic guidance for this project.”

Bitcoin mining is the process by which new bitcoins are entered into circulation. “Mining” is performed using sophisticated hardware that solves an extremely complex computational math problem. The first computer to find the solution to the problem receives the next block of bitcoins and the process begins again.

By limiting the pilot program’s focus to three machines, the city achieves the goals of responsibly assessing and executing a municipal Bitcoin mining program at a manageable scale. After six months, the city will evaluate the program.

Based on the number and type of machines being used, the city estimates each will consume the same amount of energy as a household vacuum cleaner. The nominal amount of energy needed for the program is expected to be offset by the value of Bitcoin mined. Keeping the pilot program small enables the city to learn the potential impact and opportunities for Bitcoin.

“Texas is increasingly being recognized as the global leader in Bitcoin and blockchain, and Fort Worth will have a seat at that table,” said Fort Worth Director of Economic Development Robert Sturns. “The pioneering spirit is alive and well in Fort Worth, and with this program we will attract dynamic companies that share in this vision for the future.”

The program is part of Fort Worth’s larger plan for growth, building momentum onto recent efforts, including partnerships with Texas A&M University System’s planned Research and Innovation Center in downtown Fort Worth and Techstars Physical Health Fort Worth Accelerator, and establishing the city’s first Entrepreneurship and Innovation Council Committee to build a next-level entrepreneurship ecosystem.

In the Economic Development Strategic Plan of the City of Fort Worth adopted by City Council, the city has set a goal of “a ‘next-level’ economic development strategy must encourage innovation and creativity, build an environment that is attractive to talented individuals and dynamic businesses, and maintain a forward-looking organizational structure.”

Photo: Fort Worth Mayor Mattie Parker stands amid the Bitcoin mining machines in the City of Fort Worth Information Technology Solutions Department Data Center, marking the city’s commitment to becoming a hub for technology and innovation.

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The City Council on Tuesday approved a resolution in support of four regional transit projects and committing funds to the projects.

The city is partnering with the North Central Texas Council of Governments, Texas Department of Transportation and Trinity Metro to advance the four regionally significant projects in the city limits.

Here’s a rundown of the projects and the city’s role in each:

This project will reconstruct East Lancaster Avenue from Dottie Lynn Parkway to downtown as a multimodal corridor that includes high-comfort pedestrian and bicycle accommodations, enhanced transit, broadband and other “smart streets” features.

The North Central Texas Council of Governments intends to submit one or more federal grant applications on behalf of the city and region in support of TxDOT’s East Lancaster Corridor project. The project needs to be further developed to ensure the project is competitive. City, TxDOT and NCTCOG staff are working to coordinate a unified planning and implementation process to ensure that the project is competitive for federal funding, based on community vision and is delivered in a timely fashion. Once the process and timeline have been defined, the city and TxDOT will begin planning and engineering work this fall.

The city will be asked to contribute approximately $16.5 million, consisting of $6,430,160 in local funds being reallocated from the TEXRail Extension project, plus $10 million for reconstruction as part of the 2022 Bond Program. The project already has commitments of $40 million in other federal funds from the Regional Transportation Council and $10 million in state funds from TxDOT.

Trinity Metro’s TEXRail extension project will extend the existing commuter rail service 2.1 miles south from T&P Station in downtown Fort Worth to a new Near Southside station to be located at Mistletoe Boulevard between Jerome Street and behind Baylor Scott & White All Saints Medical Center.

The project is a necessary step to eventually extend the route to near Chisolm Trail Parkway.

The federal cost share of the project is made up $71.4 million in funds from the Regional Transportation Council; $38.9 million in leftover funds from the initial TEXRail project to the airport; and $11.3 million in federal funds being reallocated from the Katy Lofts project. The Regional Transportation Council has also allocated the equivalent of $21.1 million in Transportation Development Credits for the project.

The bulk of the local match will be $48 million from Trinity Metro. The city will be asked to provide $7.16 million in local funding toward the project to match federal funds.

City and Trinity Metro staff will be working to secure a donation of the Baylor Scott & White-owned land for the future Mistletoe Station.

The Regional Transportation Council is committing $26,474,000 in federal funds and the equivalent of $5,348,000 in Transportation Development Credits toward Trinity Metro’s new Trinity Lakes Trinity Railway Express Station and associated private development near the station.

The Regional Transportation Council committed more than $16 million to this project, which will reimburse transit riders using the Trinity Metro route in the I-35W managed lanes between downtown and Alliance if they arrive after the scheduled arrival time. There is not a financial commitment from the city in the project, but it is an innovative service that will increase the reliability of transit.

Photo: The four projects are intended to advance the multimodal transit goals of Fort Worth and the region.

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Texas A&M University and Tarrant County College have launched an innovative co-enrollment partnership to address Texas’ growing need for engineers.

The Texas A&M Engineering Academy at Tarrant County College will admit qualified students to the Texas A&M College of Engineering and allow them to complete the first two years of coursework at Tarrant County College before earning their engineering degrees at A&M’s main campus in College Station.

Applications for the program will be accepted through July 31. The program will begin this fall.

“It’s particularly a huge win for the state of Texas because it finds a lot of really qualified young men and women that didn’t know they had the opportunity to get an engineering degree from one of the top 10 engineering schools in the United States,” Texas A&M System Chancellor John Sharp said as officials unveiled the program with a formal announcement May 13 at the TCC South Campus in Fort Worth.

Sharp said the TCC program and similar A&M academies at other schools afford first generation college students the opportunity to excel and overcome economic hardships.

“Maybe they have to stay home and take care of a parent or something in particular,” he said. “The amazing thing about these engineering academies,” Sharp said, is that students who transfer from community colleges to A&M have better scores in engineering and better grades in engineering then the students who began at A&M as freshman.

John E. Hurtado, interim vice chancellor and dean of the college of engineering at Texas A&M, understands what it is like to be a community college student.

“I started at a community college,” said Hurtado, who earned his Ph.D in Aerospace Engineering at Texas A&M. “I did not go to college right after high school. I took a few years to work and then I started at a community college,” he said. “The big difference for me was the college counseling and the college counselor that made an impact in my life at a community college and I know that those individuals are here also at Tarrant County College.”

TCC South Campus President Dan Lufkin said he believes the partnership will thrive over the next five years.

“It is a wonderful opportunity. It’s an on-ramp to a career and pathway into engineering,” he said.

Ed Bassett, director of Texas A&M engineering academies, said the program fits perfectly with TCC’s motto, “Success Within Reach,” because the academy puts the engineering profession within reach for students who didn’t think it was possible before and for those students who just prefer to start locally and then move on to a larger university.

“What is special about today is that the students will have an opportunity to attend Texas A&M that perhaps in the past wouldn’t have,” said Elva LeBlanc, TCC acting chancellor, executive vice chancellor and provost. LeBlanc said by that by starting at TCC, the students “will get a good foundation” and will learn “how to become very good college students and become very successful.”

The partnership with TCC marks another phase in Texas A&M’s expanding presence in Fort Worth, where the university is constructing a research and academic campus near the Fort Worth Convention Center. Representatives of the A&M System, the city of Fort Worth, Tarrant County and the economic development nonprofit Fort Worth Now signed a memorandum last fall outlining plans for the new campus, a three-building development that will be constructed in phases. The three projects are expected to cost a minimum of $250 million.