Moody’s Investors Service has downgraded the troubled Southern California Logistics Airport Authority’s subordinate tax-allocation revenue bonds to B3 from B1.
“The downgrade of the subordinate bonds is primarily based on the earlier than anticipated debt-service payment default, and the high likelihood that defaults will continue for multiple years,” Moody’s said in a report Tuesday.
The downgrade affects $51 million of bonds issued in 2007 and 2008.
The airport authority is run by the Victorville City Council, which has its own serious financial and legal troubles. The region, 80 miles northeast of Los Angeles, has been hit hard by the housing bust.
On Dec. 1, the SCLAA defaulted on $535,000 in principal payments.
Moody’s said a defect in the debt-service reserve fund compounded the revenue shortfall because it prevented its use for principal payments, even though it held enough cash to cover annual principal and interest payments.
The rating agency said California’s elimination of redevelopment agencies also contributed to the downgrade because it remains unclear whether the Logistics Airport Authority could use revenue from other sources to cover debt service.
As of last year, the authority did not have enough tax increment revenue to cover debt service on the bonds and it used increment collected previously to cover the payments, according to Moody’s analysts.
Moody’s said in a scenario assuming 1% annual assessed property-value growth, pledged revenue would be enough to cover debt service on the bonds by 2022.
It said a full repayment under that scenario of missed principal payments would happen by 2029.
“The B3 rating reflects the current defaulted status of the bonds, the likelihood of continuing future defaults, and ultimate bondholder recovery estimated at 95%,” Moody’s said.
