DALLAS - Two military housing deals are on Moody's Investors Service watch list for possible downgrade because of their backing by troubled insurance giant American International Group Inc.
The action, based on the recent downgrade of AIG, affects the Fort Irwin Land and Belvoir Land military housing revenue bonds. AIG provides surety bonds for the debt service reserve funds.
"Moody's considers the debt service reserve fund to be an important component of support for the bonds and therefore a key factor in the rating," analysts wrote.
Issued in 2005, the $319.5 million of Fort Irwin bonds financed construction of privatized military housing at three California bases: Fort Irwin near Barstow, Moffett Field in Santa Clara County, and Parks Reserve Forces Training Area in Dublin. Bonds were issued in three classes based on seniority and rated by Moody's at Aaa, Aa3, and A3, respectively.
The Belvoir bonds were also issued in three classes to finance the construction and rehabilitation of privatized military housing at Fort Belvoir in Fairfax County, Va. The bonds carry the same Moody's ratings as the Fort Irwin debt.
Moody's said the bonds might not receive a downgrade.
"Bonds are being placed on watch in order to provide the issuer and other interested parties time to take action to provide alternate funding of the debt service reserve fund consistent with the ratings," analysts wrote.
Standard & Poor's rates the Irwin Class I and II bonds AA and the Class III bonds A.
The $513 million of Belvoir bonds were also issued in 2005. Standard & Poor's issued the same A-rating for the Class III bonds and AA for the other two classes.
The federal government yesterday announced another $40 billion investment in AIG on the heels of an $85 billion bailout intended to save AIG from possible bankruptcy.
In Fairfax County, Va., the Army and Clark Pinnacle Family Communities teamed up in December 2003 to build and operate a new housing community that is expected to be completed in 2011. Clark Realty and Seattle-based Pinnacle, a property management company - will spend the next 50 years managing a total of 2,070 Fort Belvoir homes for the Army.
At Fort Irwin, Pinnacle is building 715 new homes in four different neighborhoods for soldiers and their families. The development will replace many of Irwin's older homes and is designed to reduce the waiting list for family housing. Each new home will be at least 1,650 square feet, with three bedrooms and two-car garages.
The developer is also building parks, playgrounds, tennis and basketball courts, a town center, a large community center, and a neighborhood center.
In a January report on the military housing sector, Standard & Poor's reported 140 ratings on 66 military housing transactions with a par volume of $17.9 billion. The transactions are typically structured with between one and four tranches of debt, and 85% is insured.
"The military housing sector remains strong, despite the negative rating actions that occurred in 2007," analysts wrote. "Overall credit quality is strong, as evidenced by high debt service coverage ratios and the affirmation of 52 ratings."
