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Rating Update:

MOODY'S AFFIRMS A1 RATING ON UNITED NATIONS DEVELOPMENT CORPORATION'S 2009 REFUNDING BONDS, SERIES A; OUTLOOK REMAINS STABLE

18 Jul 2011

$100,625,000 of fixed-rate debt affected

Not-for-Profit Organization
NY

Opinion

NEW YORK, Jul 18, 2011 -- Moody's Investors Service has affirmed the A1 rating on $100,625,000 of outstanding United Nations Development Corporation, 2009 Refunding Bonds, Series A.

RATINGS RATIONALE

The rating is based upon the pledged revenue stream of net revenues from the Corporation's office building properties near the United Nations headquarters in New York, strong debt service coverage, strong occupancy and competitive market position of the properties, and stability provided by tenants related to the United Nations.

The outlook is stable based on the debt service coverage, the quality of the buildings and the Corporation's experienced management

STRENGTHS:

*Stable revenue stream from fully or near-fully occupied office properties near the UN Headquarters and leased primarily to the UN, foreign missions to the UN and UNICEF

.

*Competitive position based on below-market rent and location near UN headquarters

* Support from New York City in the form of a back-up lease agreement for One and Two UN Plaza in the event the UN vacates space in those buildings

* High debt service coverage of 2.21x based on 12/31/10 audited statements

*1.25x debt service coverage requirement

. * Operating expense and capital expense pass-thru provisions in leases, which serve to insulate bondholders from the risk that rising expenses may erode debt service coverage

CREDIT CHALLENGES:

* Concentration in two unrated tenants, the UN in One and Two UN Plaza and UNICEF in Three UN Plaza

* New York City back-up lease agreement does not cover Three UN Plaza

* Under the Indenture, eligible tenants are limited to UN-related entities, government-related entities and other not-for-profit entities, which may impact leasing process in the event the UN and affiliated organizations vacated the office space

* UN leases in One and Two UN Plaza expire in 2018 (or 2023 if the UN exercises an extension option), eight years (or three years, if the UN exercises its option) prior to bond maturity; several other leases to One and Two UN Plaza tenants expire before the bonds, but these leases are significantly smaller than the UN leases.

Detailed Credit Discussion

The primary security for the bonds is a pledge of net revenues from the operation of three office buildings known as One UN Plaza, Two UN Plaza, and Three UN Plaza. The office buildings are located in close proximity to the UN Secretariat and General Assembly buildings in New York City. UNDC has covenanted that it will charge rents at an amount that will produce net revenues equal to or greater than 125% of annual debt service. Additional support is provided by funds held by the Trustee; including, a Debt Service Reserve Fund sized at the maximum annual debt service on the Series 2009A bonds, a Replacement Reserve Fund, and a Surplus Fund.

The net revenue pledge to Series 2009A bondholders is subordinate to two other series of bonds, Series 1978 and Series 1980 (not rated) issued in conjunction with the UNDC's construction of Two UN Plaza. These bonds are non-callable and fixed-rate, with bullet maturities in July 2028 and August 2025 respectively. There is currently $287,500 of 1978 debt outstanding and $1,250,000 of 1980 debt outstanding. The 1978 and 1980 bondholders have a senior claim on the net revenues of One, Two and Three UN Plaza, but have no right to foreclose upon the properties or impair the operation of the properties in other ways. The Corporation has a total of $106,822,500 of debt outstanding as of 12/31/10.

Debt service coverage ratio on the Series 2009A bonds improved to 2.21.x as of 12/31/10 from 2.10x as of 12/31/09 based on audited statements. Office space continues to be fully or near-fully leased, and the Corporation continues to renew or extend leases upon expiration with the UN or UN-related organizations, providing stability to the tenant base.

Between 2002 and 2005 the Corporation engaged in planning for the construction of an additional office building to be developed by the Corporation and leased to the UN (the Consolidation Plan). New York State enacted legislation in 2011 necessary for UNDC to again commence work on the Consolidation Plan. The legislation's effectiveness is contingent upon completion by October 10, 2011 of a memorandum of understanding among the Corporation, the City, and representatives of the legislature concerning various issues including replacement of park space that would be occupied by the new building. If the memorandum of understanding is completed by the required date, the Corporation will resume work on the Consolidation Plan. In anticipation of this event the Corporation's Board of Directors established a reserve of $8.6 million for planning and design work, funded from the Corporation's Consolidated Surplus (90% of these funds might otherwise have been remitted to the City as addition rent pursuant to ground leases of the office buildings). The Corporation anticipates a planning process of approximately two years. If the additional building is constructed, it is possible that tenants currently occupying One and Two UN Plaza might relocate to the new building upon expiration of their leases; however, this risk is mitigated by a Backup Lease with the City providing that the City will make certain payments to replace rentals that would have been paid by UN tenants vacating the buildings (subject to appropriations, and only if the buildings have not been sold or the Bonds retired as provided in the Backup Lease).

Outlook

The outlook on the bonds is stable based on the debt service coverage, the unique location of the buildings and stable tenant base, and the history of high occupancy.

What Could Change the Rating - UP

* Significant improvement in debt service coverage levels

* Maintaining or improving the properties' rent discount to comparable market rent

* Continued reinvestment into the property and accumulation of reserve funds

What Could Change the Rating - DOWN

* Deterioration in debt service coverage levels

* Decreases in building occupancy levels

* Evidence of significant market competition

The Series 2009A bond rating was assigned by evaluating factors believed to be relevant to the credit profile of the issuer such as i) the business risk and competitive position of the issuer versus others within its industry or sector, ii) the capital structure and financial risk of the issuer, iii) the projected performance of the issuer over the near to intermediate term, iv) the issuer's history of achieving consistent operating performance and meeting budget or financial plan goals, v) the nature of the dedicated revenue stream pledged to the bonds, vi) the debt service coverage provided by such revenue stream, vii) the legal structure that documents the revenue stream and the source of payment, and viii) and the issuer's management and governance structure related to payment. Please see the Credit Policy page on www.moodys.com for a copy of this methodology .

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the credit rating are the following: parties involved in the ratings and parties not involved in the ratings.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

William Fitzpatrick
Analyst
Public Finance Group
Moody's Investors Service

Florence Zeman
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service, Inc.
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New York, NY 10007
USA

MOODY'S AFFIRMS A1 RATING ON UNITED NATIONS DEVELOPMENT CORPORATION'S 2009 REFUNDING BONDS, SERIES A; OUTLOOK REMAINS STABLE
No Related Data.
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