DALLAS — Moody’s Investors Service lowered its rating on two series of bonds issued by the Bexar County Housing Finance Corp. on behalf of the Cinnamon Creek Apartments in San Antonio following a review of a 2006 audit, interim financials for fiscal 2007, and occupancy reports.

Analysts downgraded $12.8 million of Series 2002A bonds to Ba2 from Ba1 and $1.3 million of Series 2002B to Ba3 from Ba2. The outlook on the debt, which was sold through the American Opportunity for Housing Inc. program, remains negative.

Moody’s is the only agency to rate the debt.

Occupancy at the complex and debt-service coverage on the bonds are weak, and analysts said the coverage ratio may further decline as “market research indicates moderate rent growth and increases in vacancies” in the area.

“Interim 2007 finances indicate coverage of 1.19 times senior debt and 1.06 times subordinate debt,” which is up slightly from the prior year, according to analysts. “However, Moody’s views this improvement cautiously because audited [net operating income] is frequently less than that obtained from interim statements.”

Moody’s also said the occupancy rate of 90.7% is below the 95% average of the area, citing Torto Wheaton Research, which also indicated further declines in the average over this year and next.

Moody’s analyst Toby Cook said one positive for the debt is the American Opportunity for Housing’s willingness to transfer cash to the project, which it did in 2006 for capital improvements at the complex.

But that nonprofit organization is under no obligation to do so, and the low occupancy rates and debt service coverage “work in concert with each other” to limit the rating, Cook said.

The 34-year-old Cinnamon Creek apartment complex is about 12 miles northwest of downtown San Antonio and includes 278 units in 58 buildings, according to Moody’s.

According to its Web site, the American Opportunity for Housing “develops multifamily workforce housing in stable, growing markets that show increased need, and is nationally recognized for using innovative yet sound debt financing mechanisms, including combinations of rated and nonrated, tax-exempt or tax credit bond financing for acquisition and rehabilitation as well as new construction.”

Most of the organization’s properties are in Texas, the majority of which are in the San Antonio area where the group is based.

Since 2006, the Bexar County Housing Finance Corp. has been entangled in a federal case involving a Dallas couple that were indicted for allegedly bribing state and local officials for approval of bond-funded, low-income housing deals.

None of the BCHFC directors involved in the case are currently serving on the board, chairman Rudy Rodriguez said in early October.

Southwestern Capital Markets Inc. is the financial adviser to the issuer, and Fulbright & Jaworski serves as bond counsel.

Calls to the BCHFC and the American Opportunity for Housing weren’t returned by press time.


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