APPROXIMATELY $131.4 MILLION OF OUTSTANDING SENIOR DEBT AFFECTED; OUTLOOK IS STABLE
NEW YORK, May 26, 2011 -- Moody's Investors Service has affirmed the A1 rating on approximately $131.4
million of outstanding senior lien (Class I) debt on Fort Carson Family Housing,
LLC Taxable Housing Revenue Bonds, Series 1999.
The affirmation is justified by strong financial and operational performance in
2010, as well as maintenance of well-funded reserves. The stable outlook is
supported expectation of continued strong performance in the near term.
The bonds are special obligation of the issuer, secured by a pledge of rental
and other revenues (including the Basic Allowance for Housing receipts)
generated by Fort Carson Family Housing, LLC, a privatized military housing
located in Colorado Springs, CO; assignment of a leasehold mortgage on property,
improvements and equipment therein; and Trustee-held reserve funds.
-- Highly essential base
-- Initial Development Period (IDP) has been completed and Project is currently
-- Average occupancy of 97% in 2010
-- 2.22x debt service coverage in 2010
-- Military Housing Guaranty Agreement with USA (US DOD), under which the USA
will cover debt service defaults on the senior bonds (Class I) caused by closure
of the Installation, downsizing or net deployment of at least 40% of
-- Utilities are provided by the Army, and are reimbursable from available cash
flow after paying debt service on all bonds; thus, Project is not subject to
volatility of utility prices
-- Surety agreement (National Public Finance Guaranty Corp., Rated Baa1) only
provides for debt service coverage for up 6 months of Maximum Annual Debt
-- Rental revenue is exposed to volatility in yearly BAH payments, which are
subject to Federal budget appropriation risk. Such risk applies to rent levels
for incoming tenants who are newly assigned to the base.
-- Ongoing deployments influence high turnover rates of about 45% per year at
the Project. This is mitigated by a high ratio of eligible families to housing
units, as well as a Project wait list of approx. 1,540 households.
-- As of December 2010, the Project has not posted cash collateral, as required
pursuant to downgrade of the surety provider (National Public Finance Guaranty
Corp., formerly MBIA, rated Baa1 with a developing outlook); both the
bond trustee and the surety provider recently extended a prior waiver on
the technical default through April 1, 2014.
DETAILED CREDIT DISCUSSION
Fort Carson Family Housing is a 3,060-unit privatized military housing
development located at the U.S. Army's Fort Carson Base in Colorado Springs,
Colorado. The Project was initiated in 1999 under a ground lease with the U.S.
Department of Defense. The scope of work was completed in two phases, both of
which are complete as of March 2010, for a total of 3,060 end-state units. Phase
I, completed in December 2004, involved the renovation of 1,823 existing units
acquired under the ground lease, as well as the new construction of 841
units. Phase II, completed in March 2010, involved the new construction of 404
units, as well as the demolition of eight (8) existing units.
Phase I of the Project was financed with proceeds from the Series 1999 (Class I)
bonds (rated herein), while Phase II was financed with proceeds from the Series
2006 (Class II and III) subordinate bonds (not rated by Moody's).
The Project is managed by Balfour Beatty Communities (BBC) under a
current management agreement. BBC took over management of the Project
in November 2003, completing the final portion of Phase I of the Project and all
of Phase II. BBC continues to manage the day-to-day operations, and asset and
fiscal management of the stabilized development.
REAL ESTATE FUNDAMENTALS REMAINED STRONG IN 2010
In 2010, average occupancy levels at the Project remained strong at 97% of
on-line units, an increase over an observed 95% in the prior year. This is
driven by the high demand for the Project as evidenced by a high ratio of
eligible families to end-state units of approximately 4.7x. Demand is also
expected to increase with the anticpated arrival of a new aviation brigade with
approximately 1,600 additional eligible families to the base. Rent rates at the
Project, which are driven by Department of Defense Basic Allowance for Housing
(BAH) levels, have increased for each of the last three years with 2011
displaying a non-weighted average increase of 3.56%. However, rent growth is not
guaranteed going forward given the risk inherent in future BAH levels, which are
subject to Federal Appropriation. BBC reports that it believes that rents at the
Project are at approximately 100% of comparable market rents, which in addition
to the Project's advantages, such as its on-base location, helps maintain the
Project's competitive market position.
FINANCIAL PERFORMANCE REMAINED STRONG IN 2010
In 2010, the Project achieved a debt service coverage of 2.22x on the senior
bonds, a significant increase over the prior year's coverage of 2.03x. This
represents the third consecutive yearly increase in coverage, and in 2010 was
driven by growth in revenues of 7.7% outpacing growth in expenses of 3.5%, for
an overall increase in net operating income of 9.5%
--1.) Status of IDP: Phase II is complete as of March 2010.
--2.) 2010 Expansion: Army provided $98.3M in equity capital to the Project to
fund the new construction of an additional 308 units of housing in furtherance
of the Grow the Army Initiative. The new assets will be absorbed into the bond
trust estate upon stabilized occupancy, which is expected for 2013.
--3.) Turnover rate at approximately 45% per year: 2011 deployments affect
approximately 4,800 out of 14,500 current eligible families (related number of
occupied units unknown); however, return of other brigades helps maintain
balance, dynamic which is very common to the Project.
--4.) Arrival of a new aviation brigade with 2,700 eligible personnel is
expected for 2013. Incremental housing need will be met with the next phase of
development, currently in early planning stages.
--5.) As of December 2010, the Project has not posted cash collateral, as
legally required pursuant to downgrade of the surety provider (National Public
Finance Guaranty Corp., formerly MBIA, rated Baa1 with a developing outlook);
both the bond trustee and the surety provider recently extended a prior
waiver on the technical default through April 1, 2014.
The stable outlook on the rating is supported by Moody's expectation that the
project will continue to perform well, and make full and timely payments of debt
service in the near term.
WHAT COULD CHANGE THE RATING UP?:
- Replacement of the debt service reserve surety with one from a highly rated
- Replacement of the debt service surety provider with a cash
collateralized account held by the bond trustee
- Substantial and sustained increases in debt service coverage
WHAT COULD CHANGE THE RATING DOWN
- Declines in debt service coverage
- Substantial or prolonged declines in occupancy
- Further downgrade of the rating of the DSRF surety provider
The principal methodology used in this rating was Global Housing
Projects published in July 2010.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings and public information.
Moody's Investors Service considers the quality of information available on the
issuer or obligation satisfactory for the purposes of maintaining a credit
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Moody's Investors Service
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MOODY'S AFFIRMS A1 RATING OF FORT CARSON FAMILY HOUSING, LLC TAXABLE HOUSING REVENUE BONDS SERIES 1999
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