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Rating Update:

MOODY'S AFFIRMS Aa1 RATING TO WYANDOTTE COUNTY/KANSAS CITY, KANSAS TAXABLE INDUSTRIAL REVENUE BONDS (EPA LABORATORY PROJECT)

06 Dec 2010

Outlook on $19 million debt outstanding is stable

General Services Administration
State
KS

Opinion

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.

RATING RATIONALE

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 APPROPRIATION

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, OFF-SET

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 additional payments.

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.

Outlook

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 abatement risk

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 occupied

- 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.

REGULATORY DISCLOSURES

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.

Analysts

Marcia Van Wagner
Analyst
Public Finance Group
Moody's Investors Service

Lisa Heller
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S AFFIRMS Aa1 RATING TO WYANDOTTE COUNTY/KANSAS CITY, KANSAS TAXABLE INDUSTRIAL REVENUE BONDS (EPA LABORATORY PROJECT)
No Related Data.
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