Moody’s Investors Service last week placed 15 of the Mississippi Home Corp.’s Aaa-rated bond issues on watch for possible downgrade.

The action followed Moody’s downgrade of Pallas Capital Corp.’s long-term rating to Baa3 from Aaa and the downgrade of its short-term rating to P-3 from P-1. Pallas is a special-purpose corporation organized for the sole purpose of issuing guaranteed investment contracts to eligible state and local government authorities, according to Moody’s.

The action affects various single-family mortgage revenue bonds issued by Mississippi Home between 2004 and 2008.

“All of these issues have exposure to Pallas through guaranteed investment contracts and may be subject to increased principal repayment risk as a result of the reduced credit quality of Pallas and the risk that, in the event the GIC is replaced, the new interest rate from the replacement investment will not be high enough to support debt service on the bonds,” Moody’s said.

The rating agency plans to review the affected bond issues over the next few weeks and “take appropriate rating action as necessary.”

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