Bangkok--2 Jun--Standard & Poor's
(Editor's note: In the article published earlier today, the SPUR on Army Hawaii Family Housing LLC's series 2005 class III-A and III-B bonds was misstated. A corrected version follows.)
Standard & Poor's Ratings Services lowered its underlying rating (SPUR) to 'BBB-' from 'A+' on Army Hawaii Family Housing LLC's series 2005 classes III-A and III-B bonds. The outlook is negative. Standard & Poor's also affirmed its 'AA' rating and SPUR on the project's military housing revenue bonds, series 2005 classes I-A, I-B, and II. The outlook is stable.
"The ratings reflect project's declining debt service coverage due to its auction rate debt, as well as higher-than-expected vacancy rates," said Standard & Poor's credit analyst Karen Fitzgerald.
Revenues and interest earnings from the project generated debt service coverage (DSC) of 1.03x on the class III bonds for the fiscal year ended June 30, 2008, which is well below our original projections. Due to the stresses in auction rate market, the project began to pay penalty rates on its auction rate debt (class III bonds) beginning in May 2008, which has reduced the project's overall DSC. Year-to-date financial statements provided by management indicated similar coverage of 1.05x on class III in 2009.
The project continues to have higher-than-expected vacancy rates, with a rate of 11.8% in 2008 and similar vacancy in 2009. Management reported it had offered rent concessions during fiscal 2008. The revenues generated by the project are derived from the service members' basic allowance for housing (BAH), which varies by location, rank, and family status. In 2008 and 2009, the BAH rates set by the U.S. Department of Defense have had an adverse affect on the project. The project received a very small increase of 0.06% in 2008, followed by a decrease of 2.29% in 2009, which has depressed the project's rental income.
The housing project will primarily serve military families assigned to Army bases located on the island of Oahu. The project is owned and managed by Army Hawaii Family Housing LLC, a joint venture of the U.S. Army and Actus Lend Lease LLC.
RELATED RESEARCH
USPF Criteria: "Military Housing Privatizations," June 14, 2007
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Media Contact:
Ana Sandoval, New York (1) 212-438-5095, [email protected]
Analyst Contacts:
Karen Fitzgerald, San Francisco (1) 415-371-5023
Mikiyon Alexander, New York (1) 212-438-2083