S&P Global Ratings suspended its long-term ratings on two affordable housing portfolios in Chicago suburbs owned by Ohio-based Better Housing Foundation due to financial reporting delays that have also frustrated bondholders.
The Windy City Portfolio Project 2017 A and B series bonds had carried BB ratings and were on negative watch while a C series carried a B-plus rating, also on negative watch. The three series total $59.8 million.
The 2018 Blue Island LLC portfolio A bonds had been rated BBB-minus, on negative watch, and a B series was rated BB-plus on negative watch. The two series total $25 million.
The two have suffered credit erosion over the last year but payments remain in good standing unlike other BHF bonds sold to acquire three Chicago-based portfolios. BHF defaulted on those bonds issued for the Icarus, Ernst, and Shoreline portfolios on June 1.
"The suspension of the ratings follows our inability to obtain timely information of satisfactory quality to maintain the rating on the bonds in accordance with our applicable criteria and policies," said S&P analyst Raymond Kim.
BHF has not filed audited 2018 financial statements for all five. An
“Accordingly, we are unable to verify the net cash flow of the projects, a figure we rely on to calculate debt service coverage on the series 2017 and 2018 bonds,” S&P said. “If we receive information within 90 days that we consider sufficient and of satisfactory quality, we will conduct a review to reinstate the ratings. If the information is not received within 90 days, we will withdraw the ratings.”
The Windy City bonds recently traded at 77 cents on the dollar and the Blue Island bonds have not recently traded, according to EMMA trade data.
Wilmington Trust NA also resigned last month as trustee on the two suburban portfolios at bondholders’ request, following the lead of holders of the three Chicago portfolios. UMB Bank NA represents all five.
Chicago is seeking court-appointed receivers to take charge of the housing stock in the three Chicago affordable housing portfolios acquired by the not-for-profit with proceeds of $84.4 million of now defaulted bonds.
The bonds for the Shoreline, Icarus, and Ernst portfolios were sold between 2016 and 2018. The Illinois Finance Authority was conduit isser for all five portfolio bonds. After a change in leadership, efforts to address poor conditions at the Chicago projects that have led to code violations, dwindling occupancy, and the loss of Chicago Housing Authority voucher payments have faltered, and BHF lacks the funds for repairs. BHF is trying to come up with funding support to make needed repairs.
When they were issued, the bonds carried ratings in the triple-B and single-A categories, depending on their senior or subordinate status. All are now junk-rated, including the suburban Windy City and Blue Station suburban portfolios, which remain in good standing.
