Moody's Investors Service said it has placed the A2 rating of Temple College, Texas, on review for possible downgrade.

The rating action affects approximately $2.3 million of Temple College's Series 2003 housing system and use fee revenue and refunding bonds.

Moody's has placed Temple College's A2 rating on review for possible downgrade following its filing on January 1, 2013, of multiple event notices related to Series 2001 bonds issued by Temple Junior Foundation, Inc., a component unit of the college, for University Courtyard Apartments, a 288-bed student housing facility built for the benefit of the college.

The event notices indicate that from 2009 through 2011, the foundation made several unscheduled draws on the debt service reserve fund resulting in the fund being depleted. In addition, ACA, the bond's insurer, is assisting the foundation to make timely debt service payments. In turn, the foundation has entered into promissory notes with ACA to repay the bond insurer for payments they've been making on behalf of the foundation, with $848,329 due to ACA as disclosed in the more recent audit dated FY2011.

While Temple College is not legally obligated to support the foundation's Series 2001 bonds, Moody's has included the debt when calculating the college's direct debt due to the close relationship with the foundation.

The college is required to market the project to students, as stipulated in the project's occupancy agreement. The facility is viewed as the primary residential offering to students. The residence facility has met neither occupancy nor revenue projections for some time.

As a result, the college has provided partial housing scholarships, particularly to athletes, as an inducement to reside in the project. That scholarship support represents a third of the projects' revenue but still proving to be insufficient to fully fund debt service.

The review will assess the relationship between the college and the University Courtyard Apartments, the college's historic and expected support of the project, the project's current occupancy, and projected cash flow and fund balances to determine what degree the challenges facing the housing project impacts the college's overall credit rating.

Moody's expects to conclude its review before March 1, when the next debt service payment date is due.

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