Moody's Investors Service has downgraded to B2 from Aaa the rating of $1.6 million of outstanding taxable multifamily housing revenue bonds issued by the Harrisonburg, Va., Redevelopment & Housing Authority in 2001.
The 14-notch downgrade is the result of a miscalculation when the bonds were affirmed as Aaa in 2010, according to Moody's analyst Brendan Weber.
"The trust fund balances that were used in our assumptions for the cash flow projections were overstated, which resulted in a mistake in our expectations and calculation of the asset-to-debt ratio," Moody's said in a credit analysis of the bonds issued Tuesday. "The assumptions have now been corrected, and today's rating action reflects that change."
The bonds, which were used to finance the Huntington Village Apartments, are backed by monthly mortgage receipts and interest on short-term investments secured by a standby line of credit from Fannie Mae.
Moody's warned the authority could face cash shortfalls in 2019 or be unable to pay debt service on 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 the bonds," Moody's concluded.
The authority, created by Virginia law in 1955, is governed by a five-member board of commissioners. It runs more than a dozen redevelopment and housing assistance programs in Harrisonburg, a city of about 50,000 in the Shenandoah Valley, in the north-central part of the state.
The rating of the affected bonds would go back up if the asset-to-debt ration were to rise above 100%, as analyzed in 2010, or the bonds would face a further credit downgrade if the ratio were to fall further, Moody's said.
