NEW YORK - Standard & Poor's Ratings Services said it lowered its standard long-term rating and underlying rating (SPUR) to BB-plus from BBB-minus on Lee County Industrial Development Authority, Fla.'s various health care facilities bonds, issued for Shell Point Village (SPV). At the same time, Standard & Poor's placed its BB-plus ratings on SPV on CreditWatch with negative implications.
In addition, Standard & Poor's affirmed its AA-plus/A-1-plus dual rating on the authority's series 1999B and 2002A variable-rate demand bonds, issued for SPV based upon joint criteria, whereby the ratings reflect the security of both a Bank of America N.A. (AA-minus/A-1-plus) letter of credit (LOC) in effect for the two issues and the BB-plus' SPUR on SPV. Standard & Poor's placed the AA-plus/A-1-plus joint rating on the series 1999B bonds on CreditWatch with negative implications to reflect the potential that Standard & Poor's may lower the long-term component of the rating if the SPUR is lowered below BB-plus. The AA-plus/A-1-plus dual rating on the series 2002A bonds remains on CreditWatch with negative implications.
The rating downgrade reflects our view of SPV's weakened operating results in fiscal 2008 partly due to lower occupancy resulting from the troubled housing market, coupled with a weakening local and regional economy. Furthermore, SPV's liquidity, which in our view has been historically light for the rating, has declined further over the past several years and is a contributing factor to Standard & Poor's decision to lower the rating. While SPV has implemented some measures to improve demand and operating performance, which is evident in the interim results through the first six months ended December 2008, SPV reports that it is still generating an operating loss and its overall credit profile, particularly light liquidity, is more reflective of a speculative-grade credit in our opinion.
The ratings' placement on Creditwatch reflects SPV's violation of a days' cash on hand liquidity covenant on Dec. 31, 2008, with respect to approximately $71 million of exposure to variable-rate debt and other loans. The obligated group is required to maintain certain financial covenants with respect to the outstanding $47.64 million series 1999B and 2002A VRDBs, the $18 million revolving line of credit, and the $5.2 million construction loan.
If the covenant violation exceeds a threshold set forth in the applicable documents and constitutes an event of default, the financial institutions who are parties to the agreements would need to grant a waiver to SPV, or they could seek certain remedies, including an acceleration of debt or substitution of LOC providers. We believe that, given SPV's weak liquidity position, the uncertainty surrounding the covenant violation puts SPV at risk for further credit deterioration. Management is currently in discussions with the financial institutions and expects some resolution over the next one to three months. Standard & Poor's will continue to monitor the developments and potential credit effect when further details are known.
Total debt outstanding as of June 30, 2008, is approximately $234 million.
