Standard & Poor’s last week dropped the underlying rating on pieces of Midwest Family Housing LLC’s Series 2006A bonds and assigned a negative outlook due to poor debt-service coverage ratios and suspension of work on the project.
The Class I bonds were downgraded to AA-minus from AA, the Class III bonds to BB from BB-plus, and the Class IV bonds to B from BB. Standard & Poor’s also affirmed the BBB-minus on the Class II bonds. The outlook on all the bonds is negative. The class I, II, and III bonds are insured by CIFG Assurance NA, which is not rated by Standard & Poor’s.
Analysts cited low all-in-debt service coverage of 1.04 times for the Class I through IV bonds for fiscal 2008, and a further drop to below one times based on unaudited 2009 financial statements. Project work has been suspended and there has been a delay in the sale of land at Sabana Seca, Puerto Rico, that comprises part of the Navy’s equity contribution.
“The negative outlook reflects the project’s declining financial performance, as well as a halt in construction,” analyst Mikiyon Alexander wrote.
The credit’s strengths include the high essentiality of the projects with which the housing units and project revenue are associated; and the quality of the project’s real estate and units, which when completed should be superior to units available in the surrounding markets.
Midwest Family Housing was created to finance the acquisition and new construction of 1,976 units of military housing primarily at Naval Station Great Lakes in Illinois and NSA Crane in Indiana. In 2007, the scope of the project was amended to include units in Navy Mid-South in Millington, Tenn.
Moody’s Investors Service last month downgraded the taxable revenue bonds to ratings between the lowest investment-grade level, Baa3, and B3.
