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Rating Update:

MOODY'S DOWNGRADES MARICOPA COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY MULTIFAMILY HOUSING REVENUE BONDS (WHISPERING PALMS APARTMENTS PROJECT), SERIES 1999A TO Ca FROM Caa1

06 Oct 2010

OUTLOOK REVISED TO STABLE; APPROXIMATELY $5.2 MILLION IN DEBT AFFECTED

Maricopa County Industrial Dev. Auth., AZ
Housing
AZ

Opinion

NEW YORK, Oct 6, 2010 -- Moody's Investors Service has downgraded the $5,180,000 of Maricopa County Industrial Development Authority Multifamily Housing Revenue Bonds (Whispering Palms Apartment Project) Senior Series 1999A to Ca from Caa1. The rating action is based on the lack of financial support from the borrower, weak debt service coverage levels and the continued tapping of the Debt Service Reserve Fund.

The outlook has been revised to stable given the new rating level. A sizable portion of the underfunded Debt Service Reserve Fund may be used to meet January 1, 2011 interest payments. The Series A Bonds continue to be insured by National Public Finance Guarantee (formerly MBIA and currently rated Baa1, Developing) who is considered to be the holder of the outstanding 1999A Bonds while the event of default continues. The $1,800,000 of remaining Subordinate Series B Bonds are not rated nor has there been any interest payment since July 1, 2007.

THE PROJECT:

Built in 1985, Whispering Palms Apartments is a 200 unit low-income Bond qualified housing complex currently serving a predominantly low to moderate income clientele and is located within the west-central Phoenix submarket, approximately four miles west of downtown Phoenix. The dominant land use in this relatively mature market area is single and multifamily residential development with a limited commercial and retail presence.

Whispering Palms was restructured during the third quarter of 2004 with approximately $750,000 spent for rehabilitation purposes. A new 501c3, Rainbow Phoenix LLC, assumed ownership and hired property manager Morrison, Ekre & Bart Management Services, Inc. to manage daily operations.

RECENT DEVELOPMENTS:

On July 1, 2010 the Series A bonds experienced another technical default when the Trustee tapped the Series A Debt Service Reserve for $261,975.52 (or 87% of the $300,367.50 payment) bringing the reserve down to $106,546.65. This tap is more severe than the January 1, 2010 interest payment when the Trustee tapped Debt Service Reserve for $95,607.83 or 62% of the required $155,367.50 payment. The Series A bonds have an interest payment of $151,525 due on January 1, 2011 and it is anticipated that the reserve fund will be used to satisfy the payment.

Debt service coverage ratios derived from 2009 audited financial statements have deteriorated to 0.60x from 0.78x in 2008. Interim financial statements show coverage improving to 0.70x but the property is still behind in funding the debt service account. Occupancy has been quite volatile as a result of weak economic conditions but has averaged 93% in 2010, a significant improvement from the 84% average in 2009, and above the 90.3% level projected by CB Richard Ellis. Rents, however, remain below the Phoenix area average and the property is experiencing stiff competition from nearby properties, one of which has lowered rents by as much as 30% to maintain occupancy.

CREDIT STRENGTHS:

* Proactive Property Management by a 501c3; Rainbow Phoenix LLC

* Improving occupancy levels which are currently above the Phoenix average

CREDIT CHALLENGES:

* Underfunded Debt Service Reserve Fund that continues to be tapped for debt service payments

* Weak debt service coverage

Outlook

The rating outlook was revised to stable as a result of the downgrade to Ca. Moody's anticipates the Debt Service Reserve Fund being tapped to meet debt service requirements on January 1, 2011. Property performance over the next nine months is most critical to replenishing reserves and meeting principal and interest payments on July 1, 2011.

What Could Change the Rating - UP

Increase in occupancy would translate to an increase in revenues and net operating income which could permit stabilization and replenishment of reserves.

Financial support from the borrower to meet debt service payments and replenish the reserve accounts

What Could Change the Rating - DOWN

Continued withdrawals from the senior debt service reserve fund as well as increasing vacancy levels would exert negative pressures on net operating income. Continued technical default resulting from the borrower non-payment of required deposits to the trustee would trigger a downgrade as well.

LAST RATING ACTION & METHODOLOGY

The last rating action with respect to the Maricopa County Industrial Development Authority Multifamily Housing Revenue Bonds (Whispering Palms Apartment Project) Senior Series 1999A was on July 14, 2010 when the bonds were downgraded to Caa1 from B1.

The principal methodology used in rating Whispering Palms Apartments, AZ was Global Housing Projects rating methodology published in July, 2010. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, and confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of maintaining 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

Richard Kubanik
Analyst
Public Finance Group
Moody's Investors Service

Omar Ouzidane
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 DOWNGRADES MARICOPA COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY MULTIFAMILY HOUSING REVENUE BONDS (WHISPERING PALMS APARTMENTS PROJECT), SERIES 1999A TO Ca FROM Caa1
No Related Data.
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