BRADENTON, Fla. - Standard & Poor's lowered its underlying rating to A from A-plus on the Alabama Public Housing Finance Corp.'s 2003B bonds, citing ongoing reductions of capital program funds by Congress among the reasons.

The lower rating affects about $78 million of outstanding bonds issued by APHFC and insured by Assured Guaranty Municipal Corp. The outlook is stable, S&P said Dec. 30.

The bonds were Alabama's first pooled financing rated solely on the pledge of Housing and Urban Development capital funds received by 33 public housing authorities for modernization efforts.

In addition to reduced funding from Congress, S&P said the downgrade reflects changes in the allocation formula for funds, the fact that each housing authority's obligation is only to pay its proportionate share of debt service, and the lack of a secondary security for bondholders.

S&P said the weaknesses are offset by the strong security of pledged federal public housing modernization funds that each authority receives annually, limited risk of sanctions that can jeopardize the flow of funds to bondholders, and "a history of excellent administrative oversight of the authorities provided by the APHFC."

The bonds also have a fully funded debt service reserve sized at maximum annual debt service for each authority, a sound legal structure that insulates bondholders from the risks of each authority's management, and debt service coverage between 3.29 times and 1.93 times.

After a compounded 5% annual cut in appropriations starting in 2014 for the life of the bonds, and a cut in 5% annual high-performer bonuses, S&P said the anticipated debt coverage is at least one time through maturity.

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