LOS ANGELES — Moody's Investors Service downgraded three tranches of Fort Irwin Land LLC, Calif. military housing revenue bonds citing concern over volatility and debt service coverage.
The July 25 rating changes affected $403 million in debt. The outlook remains negative.
Moody's lowered the rating to A2 from A1 on Fort Irwin Land LLC Military Housing Revenue Bonds Class I 2005 Series A Bonds; it cut the rating to Baa1 from A3 on the Class II bonds; and reduced the rating to Ba2 from Ba1 on the Class III bonds.
Moody's analysts cited three factors for the downgrades: expectation that occupancy and debt service coverage will remain at current, low levels through 2014; the potential for high levels of volatility in coverage as basic allowance for housing and occupancy metrics fluctuate; and for Class III, the potential for a tap to the surety bond if lower revenues drive debt service coverage down further.
The strengths are that the project received a 6.4% weighted average increase in the basic allowance for housing in 2014, which offsets the occupancy challenges that have faced the project in 2013 and 2014; that all of the construction included in the original project's scope has been completed, and the army made an equity investment of $31 millionin the project in 2009 order to bring an additional 92 units online in September 2011; and that Fort Irwin is an essential Army installation. The base is the Army's National Training Center, with over 642,000 acres of space, approximately the size of Rhode Island, according to Moody's.
Among the challenges are that project occupancy softened in the past 12 months.
"We believe that the occupancy decline resulted from a slow-down in permanent change of station moves to Irwin as a result of federal government budget pressures," Moody's analysts said in the report, adding that the future of the PCS moves remains uncertain.
"Debt service coverage declined as of the 2013 audit to 1.77 times on the Class I bonds, 1.35 times on the Class II bonds and 1.01 times on the Class III bonds and we anticipate that coverage will remain close to these levels through 2014," the analysts wrote.
The negative outlook on the ratings reflects the potential for future downgrades if basic allowance rates decline, if continued budget pressures drive project occupancy down further, or if expenses increase.
While an upgrade is unlikely at this time, according to the report, increases in debt service coverage per tranche, project occupancy stabilizing at higher levels and sustained BAH increases could result in a stable outlook in the near term.
Rating downgrades could result from further declines in debt service coverage, a decrease in the basic allowance in 2015, a tap to the debt service reserve surety, or a downgrade of the surety provider.
