Standard & Poor's plans to publish rating criteria later this summer that for the firsttime covers Section 8 housing bond deals in which the underlying contract is scheduledto expire before the maturity date of the bonds, an analyst from that rating agency saidlast week.
Although such "non-coterminous" bond deals are fairly rare, they are expected to becomemore common as more long-term Section 8 rental housing subsidy contracts with thefederal government run out, Standard & Poor's managing director Wendy Dolber said in aninterview Friday.Such deals are typically extremely complicated, she said. The Department of Housing andUrban Development is generally replacing the long-term subsidy contracts, which in thepast typically ran 30 or 40 years, with shorter contracts that run between one and 20years, Dolber said.
"We really think that the well-maintained, competitive projects with the lowest risk ofcontract termination will get the highest ratings," she said earlier Friday during ateleconference.
Property owners who fail to meet their contractual obligations such as by maintainingthe property in good physical condition may find their contracts terminated, Dolbersaid.
"I think that there are probably a lot of properties out there that could be rated underthis criteria," she said. "We're still fine-tuning the criteria but we plan to issue afull report in the near future."
The announcement came days after the sale of the first batch of non-coterminous Section8 bonds that Standard & Poor's has ever rated. The tax-exempt multifamily revenuerefunding bonds, which were issued by the Philadelphia Redevelopment Authority inconnection with a 296-unit housing project for senior citizens, sold June 15. Thecurrent-refunding bonds refunded bonds issued in December 2002.
The $2.75 million of Series A bonds, which were rated A, were backed by the pledge ofrevenues under a so-called Section 236 interest rate subsidy from HUD.
The $8.45 million of Series B bonds, which received a BBB rating, were backed by thepledge of revenues from the Section 8 subsidy along with project revenues.
Moody's Investors Service rated its first non-coterminous Section 8 deal in August 2001and has rated a handful of other non-coterminous deals since then, senior vice presidentFlorence Zeman said in a interview Friday. Moody's did not rate the Philadelphia deal,she added.
Such relatively small bond deals are typically rated by one rating agency, Zeman said.
