Moody's downgrades NASA-backed bonds to Caa1

Bloomberg News

Moody's Ratings downgraded to Caa1 from B2 federal lease revenue bonds from Two Independence Hana OW, LLC, Series 2022, and maintained a negative outlook. 

The bonds are supported by lease payments from the National Aeronautics and Space Administration headquarters in Washington, D.C. Outstanding principal due at lease expiration in 2028 is $275 million. 

"Recent signals indicate that the likelihood of a full lease renewal of the current facility is diminishing as NASA looks to decrease its office footprint," Moody's said Thursday. 

"If the lease is renewed, but at a lower square footage, refinancing the principal outstanding would become somewhat more difficult, depending on interest rates and access to capital at bond maturity in 2028," Moody's said. 

Two Independence Hana OW, LLC (NASA HQ Project) is a Delaware single-asset, bankruptcy-remote, special purpose entity created for owning and leasing the property as well as issuing and securing the bonds, Moody's said.  U.S.-based Ocean West Capital Partners and South Korea-based Hana Financial Group are the ultimate owners and parent companies of Two Independence. 

Ocean West didn't immediately return a request for a comment. Hana couldn't be immediately reached for a comment. 

Wisconsin's Public Finance Authority served as the conduit issuer. 

The United States General Services Administration pays rent to Two Independence on behalf of NASA, the primary tenant of the property. 

Moody's said the $275 million in principal at lease expiration is 14 times the current shell rent, "which we consider very high leverage."

"Absent lease renewal by the federal government, recovery for bondholders would be limited as NASA occupies the majority of the building and a large vacancy would likely result in a much lower building value," Moody's said. "That said, with just under two years remaining on the lease, there is some time for the landlord to attract new tenants."