Outlook on $19 million debt outstanding is stable
General Services Administration
NEW YORK, Dec 6, 2010 -- Moody's Investors Service has affirmed a Aa1 rating and stable outlook on the
Taxable Industrial Revenue Bonds (EPA Laboratory Project) issued by the Unified
Government of Wyandotte County/Kansas City, Kansas ("Unified
Government"). The bonds were issued to finance the construction and
equipping of a U.S. Environmental Protection Agency (EPA) laboratory.
The rating is based on the strength of the obligation of the General
Services Administration, a federal agency, to make lease rental payments, and is
therefore derived from the United States of America's Aaa credit rating.
Although the lease rental payments are an absolute and unconditional obligation
of the United States of America, they are rated one notch off of the USA rating
to reflect the additional risk introduced by the involvement of a private
entity, which is subject to bankruptcy, as the tenant; and the presence of
abatement and set-off risk.
LEASE RENTALS ARE CONTRACTUAL OBLIGATION OF U.S. GOVERNMENT, NOT SUBJECT TO
The bonds are full faith and credit obligations of GSA, payable from rentals,
according to the lease between the Unified Government, as issuer, and Kansas EPA
Laboratory, LLC, as the tenant. The lease has subsequently been assigned to CLF
EPA Kansas City LLC, an entity created by CAP Lease, a REIT specializing in
single-purpose leased properties. Lease rental payments are not subject to
annual appropriation by the federal government, since the General
Services Administration ("GSA") has standing authority to enter into
this lease for the full twenty-year term without further legislative action. The
bonds are not an obligation of the Unified Government or the State of Kansas.
RENTAL PAYMENTS COVER DEBT SERVICE AND MAINTENANCE BUT ARE SUBJECT TO ABATEMENT,
Lease rental payments are structured to provide "base rent" to cover
debt service and "additional rent" to pay for maintenance and repair
of the facility. Base rent payments are fixed, and additional rent payments are
subject to annual adjustments for inflation, as set out in the lease between the
GSA and the LLC. In the event that the lease payments are insufficient to cover
debt service and operating costs, the LLC is required to make any necessary
Rental payments are subject to abatement, since GSA may suspend its obligation
to pay sublease rentals for any period the project is damaged or destroyed by
fire or other catastrophic event that renders the facility unusable. To mitigate
this abatement risk, the tenant is required to purchase rental interruption
insurance in an amount sufficient to cover the maximum amount of sublease
payments abated for an unlimited period of indemnity. All required insurance is
currently in place.
The tenant is responsible for maintenance and repair of the facility, and GSA
pays utilities and taxes. If the tenant fails to maintain the facility according
to the lease, the GSA can perform the maintenance and deduct those costs from
the rent due under the sublease. This set-off against rent could adversely
affect the amount of rent available to make debt service, but is mitigated by
the presence of an operating reserve fund equal to $100,000. To date, no use of
the operating reserve has been necessary.
BANKRUPTCY EXPOSURE VIEWED AS REMOTE
This financing structure is based upon the involvement of a private entity, CLF
EPA Member LLC, as the tenant, which raises the risk of bankruptcy affecting
payments to bondholders. CLF EPA Member LLC has the sole purpose of owning,
leasing and managing the EPA laboratory and its sole member is Caplease, LP.
Caplease is jointly owned by Capital Lease Funding, Inc., and CLF OP
General Partner LLC. Bankruptcy of one of these entities could cause a temporary
or permanent interruption of payment to the lessor and bondholders. However,
risk of this outcome is low according to the opinion provided by CLF Member
LLC's counsel to the transaction. The opinion argued that a court would not
order the substantive consolidation of the limited partnership and the other
entities in the event of a bankruptcy, but rather that it would recognize the
separate existence of CLF EPA Member LLC in this transaction. The rating relies
upon the strength of the bankruptcy opinion provided.
GSA SERVES AS PRIMARY BUSINESS AGENT FOR U.S. GOVERNMENT
GSA acts as a business agent for the United States government, providing a range
of services to federal agencies including purchases, sales and services. GSA has
statutory authority to manage the construction, leasing and purchase of office
buildings, and oversees hundreds of owned and leased government buildings. GSA
also has statutory authority to enter into a long-term capital lease without
specific legislative authorization if annual lease rental payments do not
exceed a present value cap determined by Congress.
The outlook for the Unified Government of Wyandotte County/Kansas City, Kansas
Taxable Industrial Revenue Bonds (EPA Laboratory Project) is stable. The outlook
reflects the expectation of full and timely debt service payments, based on the
strength of the General Services Administration's obligation to make lease
rental payments to cover debt service.
What could change the rating UP?
-Modifications that strengthen the legal structure, such as elimination of
What could change the rating DOWN?
-Material deterioration in the credit strength of the U.S.
- Failure of the tenant to maintain the facility to an extent that it cannot be
- Violation of lease terms by the tenant
The principal methodology used in this rating was The Fundamentals of Credit
Analysis for Lease-Backed Municipal Obligations published in October, 2004.
Other methodologies and factors that may have been considered in the process of
rating this issuer can also be found on Moody's website.
The last rating action with respect to the Unified Government of
Wyandotte County Taxable Industrial Revenue Bonds was on January 16, 2001 when
an initial municipal finance scale rating of Aa1 was assigned.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, confidential and proprietary Moody's Investors Service
information, and public information.
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of assigning a credit 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.
Marcia Van Wagner
Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S AFFIRMS Aa1 RATING TO WYANDOTTE COUNTY/KANSAS CITY, KANSAS TAXABLE INDUSTRIAL REVENUE BONDS (EPA LABORATORY PROJECT)
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