Moody's Investors Service said it has downgraded to B2 from Aaa the rating of Harrisonburg Redevelopment & Housing Authority, Va., taxable multi-family housing revenue bonds (Huntington Village Apartments project) 2001B, affecting $1,635,000 of outstanding debt.

This rating action concludes the review for downgrade initiated on November 12, 2012, and also removes the bonds from review for downgrade.

On January 5, 2010, the Aaa rating of the bonds was affirmed. However, the Trust Fund balances that were used in Moody's assumptions for the cash flow projections were overstated, which resulted in a mistake in Moody's expectations and calculation of the asset-to-debt ratio.

The assumptions have now been corrected, and today's rating action reflects that change.

In addition, since 2010, the continued low interest rate environment as well as general account balances in excess of amounts set forth in the indenture have deteriorated the financial position of the bonds. The calculated asset-to-debt ratio is currently 99.1%, which means that if full payment is received on the loan and the bonds are redeemed early there would be insufficient funds to pay off all of the bonds.

Furthermore, Moody's calculate that at a zero percent reinvestment rate, there will be cash flow shortfalls in 2019. These potential shortfalls are reflected in the B2 rating assigned to the bonds.

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