CHICAGO - At least three of Ohio's six port authority bond fund programs are grappling with delinquent borrowers who are struggling to repay loans from the funds in the declining economy.
The possibility of increasing loan defaults prompted Fitch Ratings to place all six bond funds on rating watch late last year. On Friday, Fitch cut its rating two notches to BBB-minus, the lowest investment grade credit, from BBB-plus on the Toledo-Lucas County Port Authority's Northwest Ohio Bond Fund, noting that two of its borrowers are delinquent and that the weak economy could imperil other borrowers.
The downgrade comes two weeks after Fitch cut its implied revenue bond rating to BBB-minus from BBB on the Cleveland-Cuyahoga County Port Authority. Its actual bond fund remains on credit watch negative. The downgrade was largely due to the authority's internal finances, but analysts noted that the bond fund program is dealing with one delinquent borrower as well as declining revenues.
In its downgrade on the Toledo-Lucas County authority's bond fund program last week, Fitch said it was concerned about the economy's impact on the borrowers' ability to make timely repayments to the fund. Of the program's 23 borrowers, two are currently delinquent. The fund has a total of $87.5 million in outstanding bonds.
Paul Toth, interim president of the Toledo-Lucas County Port Authority, said he was confident the fund's late borrowers would make full payments by May 15, when the debt service payment is due. "None of our borrowers have ever missed a bond payment even if they have missed monthly payments," he said.
The delinquent borrowers - both trucking businesses - suffered "temporary cash-flow problems" and have promised to make full payments in the coming weeks, Toth said. "We don't believe the bond fund merited the downgrade, but of course we're biased, as in 20 years of history we've always stepped in and dealt with any late payments."
If the borrowers were unable to make a debt service payment, the authority would dip into its reserves, which total $28.1 million, or 32% of the bonds outstanding, Toth said. "The bondholder wouldn't even know if these guys missed a [bond] payment because it would be cured."
Fitch is expected to soon release rating updates on the Cleveland-Cuyahoga County and Summit County port authorities' bond fund programs. Both the BBB-plus rated programs, which are on rating watch negative, are also dealing with delinquent borrowers.
Officials at the Cleveland-Cuyahoga County authority are optimistic that payment problems with its borrower, Universal Heat Treating Inc., will be short term and that its May 15 debt service payment will be met. "There's a system of reserves in the program, or the port's auxiliary reserves, or the borrower could make good on past due payments," said the authority's chief financial officer Brent Leslie.
Another possible headache is a borrower that recently landed in receivership after missing payments on an $81 million commercial mortgage loan.
A federally appointed receiver took over City View Center LLC in late February and is currently deciding whether to sell the property, a retail mall.
The Cleveland-Cuyahoga County and Summit County port authorities in 2004 issued a total of nearly $12 million of bonds to finance the project. The bonds are backed by property taxes generated from the center, which is located in a tax increment financing district.
The commercial loan trustee, the Bank of New York Mellon, made a recent $1.3 million property tax payment, and the payments are currently up to date, Leslie said. "We're pretty confident that the debt service through May 2011 is taken care of, and we're still assessing the situation."
The BBB-plus ratings of three additional bond fund programs - the Dayton-Montgomery County Port Authority, the Lorain County Port Authority, and the Columbus-Franklin County Finance Authority - are on rating watch evolving.