Standard & Poor's Ratings Services said it lowered its long-term rating on Fort Jackson Housing LLC, S.C.'s (Balfour Beatty Construction Co.) series 2008 military housing taxable revenue bonds by two notches to A-plus from AA.
The outlook is negative.
"The negative outlook reflects our view of the changes to the project's scope of work, the lower-than-expected occupancy, and the lower-than-expected income from operations," said Standard & Poor's credit analyst Raymond Kim. "We could further lower the rating if there are significant construction delays, or if the project falls short of occupancy projections as more new and renovated units go online. Since the project will have less interest earnings to pay debt service in fiscal 2013, we will continue to monitor occupancy and debt service coverage, and, if necessary, adjust the rating accordingly."
The rating reflects Standard & Poor's view of the following strengths: the transaction's financial strength, as indicated by 1.38x debt service coverage, including interest earned, based on 2012 financial statements; the 7.68% increase in weighted average basic allowance for housing in 2013; the high essentiality of Fort Jackson (due to its location) as the Army's largest initial training center, providing training to about 25% of all personnel who enter the service each year; the strength of the program administration, particularly the project owner and developer (Balfour Beatty Communities), along with the completion guaranty for the work; and the legal structure of the issue that complies with Standard & Poor's privatized military housing transaction criteria.
These strengths are offset by Standard & Poor's view of the following weaknesses: the 1.07x debt service coverage from operations, based on 2012 financial statements; and the lower scheduled interest earnings in 2013, which, S&P believes, will trigger a 17% decline in available debt service cash flow for fiscal 2013.
Fort Jackson Housing LLC's development team is a joint venture comprising Balfour Beatty Communities Management LLC, Balfour Beatty Communities Development LLC, Niles Bolton Associates, and Balfour Beatty Construction (formerly Centex Construction). Upon closing, the Army contributed $58.9 million in capital, while Balfour Beatty will deposit $3 million into the construction fund at the end of the initial development period.
