DALLAS - Standard & Poor's yesterday cut its rating on East Texas Housing Finance Corp.'s 1992 bonds 11 notches to a junk-bond credit of CC from investment-grade BBB.

From the original Series 1992A issue of $4.5 million of revenue bonds, only $315,000 are outstanding. The Jan. 1, 2009, debt service was paid to all bondholders.

Standard & Poor's downgraded the bonds to BBB from AAA in November. The bonds are not rated by the other credit agencies.

The bonds were part of an $18.2 million Series A and B issue in 1992 for the nonprofit's single-family home mortgage program. The East Texas Housing Finance Corp. has a 33-member board made up of officials from the 16 participating counties in mostly rural East Texas.

"The downgrade reflects our view of the continued decline in the project's asset-to-liability position," said credit analyst Renee Berson.

The housing program's total assets of $313,991 as of Dec. 31 were 96.2% of outstanding liabilities of $326,340, according to Berson.

The revenue and bond fund is invested in a guaranteed investment contract with Berkshire Hathaway earning 5.25% annually, while the mortgage-backed securities have a pass-through rate of 7%. Berkshire Hathaway provides no insurance coverage.

The trustee, Bank of New York Mellon, is working with internal bank parties to ascertain if there is anything it can do to provide additional funds, officials said. No bond calls can be made on the issue until the redemption fund, currently at $31,484, reaches $50,000. The current investment earnings are less than interest on the bonds, resulting in a negative drag.

"Standard & Poor's believes that unless this transaction receives a cash infusion there will be insufficient funds available to pay full principal and interest on the bonds," analysts wrote.

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