CHICAGO - Fitch Ratings pushed a chunk of troubled special-assessment debt issued for a Toledo, Ohio-area development to the default level after two missed payments.

Thursday’s downgrade lowered $9.3 million of debt issued in 2007 by the Toledo Lucas County Port Authority to D, the lowest rating, from BB.

The bonds originally carried a rating of A, but Fitch downgraded them several times after the developer failed to pay sufficient special assessments to cover debt service beginning in July 2009. Fitch is the only agency to rate the debt.

The downgrade comes after the bond trustee failed to make principal payments scheduled for Nov. 1 and May 1. The payments were missed despite  a debt-service reserve fund  that holds $1.3 million, more than enough to cover the two payments of $105,000 each. The bond trustee “declined to allow a draw on the reserve” to make the payments, the Fitch report said.

“We found this to be an unusual circumstance in that there’s a fully funded cash reserve that was not used to make scheduled payments,” Fitch analyst Arlene Bohner said in a telephone interview Friday.

The bond trustee, Bank of New York Mellon N.A., did not return calls for comment.

An event notice of the Nov. 1, 2011 principal payment default was posted on the Municipal Securities Rulemaking Board web site, but the May 1 default has not been reported.
The authority issued the bonds in 2007 to finance the Town Square at Levis Common, a mixed-use development in the town of Perrysburg. Proceeds from the $14.1 million issue financed a Hilton hotel, entertainment, and retail space. The Hilton is up and running, and developer Larry Dillin regularly pays the taxes and special assessments due on the hotel. They only represent 45% of debt-service payments.

The bonds are special limited obligations payable from special assessments levied on the development. Neither the port authority nor the city of Perrysburg have any obligation to pay the debt. The entertainment and retail part of the development is now in foreclosure proceedings. Fitch generally withdraws a D rating after 30 days unless recovery seems imminent, analysts said.

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