The U.S. Department of Housing and Urban Development is preparing regulations that for the first time would allow Indian tribes to sell bonds backed by future Indian housing grants, according to a credit analyst.
Valerie White, a director at Standard & Poor's, said she recently discussed the department's plans with senior HUD officials.
White said yesterday that the new bonding program is expected to resemble HUD's current program that allows public housing authorities to sell debt backed by future federal public housing capital grants.
White added that so far she has very few details about the upcoming regulations.
HUD spokeswoman Donna M. White confirmed the department is working on the regulations, but downplayed the significance.
"This is really only in the development stage," White said in an e-mail.
"It's a long process to prepare actual regulations. We don't want to raise any expectations that we are not able to fill. We believe this is a good concept, but really only a concept at this point," she wrote.
In the $33.6 billion fiscal 2007 HUD budget plan unveiled a week ago, President Bush proposed funding the "Native American Housing Block Grant" account at the level of $626 million, up slightly from the $624 million that Congress appropriated for it in the current fiscal year.
Thomas C. Wright, director of the loan guarantee office within HUD's Office of Native American Programs, is currently working on the regulations, and is scheduled to discuss the subject Thursday in Orlando, Fla., at a Standard & Poor's housing conference, analyst White said. However, Wright did not return calls yesterday for this article.
HUD is also drafting regulations, as previously reported, that would allow public housing authorities to sell bonds backed by future HUD public housing operating grants. Those rules are expected to surface about mid-year.
Meanwhile, Standard & Poor's separately released a report yesterday warning that the creditworthiness of bonds backed by public housing capital grants could suffer if Congress follows Bush's fiscal 2007 funding recommendation for the program.
The Bush administration has proposed funding HUD's public housing capital account at $2.18 billion in the fiscal year that begins Oct. 1, down from $2.44 billion in the current fiscal year, $2.58 billion in fiscal 2005, and $2.70 billion in fiscal 2004.
Standard & Poor's White noted in the report that 23% of capital grant-backed bond issues had a debt service coverage ratio of 3 when her agency rated them. That the ratio on those transactions would drop below 2.5 if the proposed fiscal 2007 funding levels were enacted, White added.
White said her credit agency "will carefully monitor the 2007 budget process to determine if further reductions in the final capital fund appropriation amount could affect the credit quality of the program." Wendy Dolber, managing director of the tax-exempt housing group at Standard & Poor's, noted in the report that "although the actual allocations have been more than the proposed budgets during [the past six years], the amounts appropriated for public housing modernization have continued to decline."
Charles Giordano, a director at Fitch Ratings, said he was not overly concerned about the creditworthiness of the bonds.
If Congress were to appropriate only the proposed $2.18 billion for the program in fiscal 2007, credit quality might suffer, but Congress has a history of not acceding to Bush's annual requests to deeply curtail spending on the program, he said.
"At this point, I don't see that happening," Giordano said. (c) 2006 The Bond Buyer and SourceMedia, Inc. All rights reserved. http://www.bondbuyer.com http://www.sourcemedia.com
