NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings on the following Capmark Military Housing Trust XXXIX AMC West Project Certificates (Fairchild Air Force Base [AFB], Tinker AFB and Travis AFB):
--Approximately $202 million 2008 series A-1a at 'AA';
--Approximately $14 million 2009 series A-1a at 'AA';
--Approximately $36 million series 2008 A-2 at 'A'.
The Rating Outlook on the certificates is Stable.
SECURITY
The certificates are secured by a first lien on all receipts from the privatized military housing at the three AFBs (which are predominantly made up of the monthly housing allowance, or BAH) after operating expenses have been satisfied. The series A-1a certificates are also secured by a cash-funded debt service reserve fund (DSRF) sized at maximum annual debt service (MADS).
KEY RATING DRIVERS
SOUND DEBT SERVICE COVERAGE: The affirmation reflects actual debt service coverage ratios (DSCR) of 1.79x for the series A1-a certificates and 1.67x for the series A-2 certificates (based on eight months annualized unaudited operating data for the three properties) as of Aug. 30, 2014. These ratios exceed the original projections which anticipated minimum DSCRs of 1.50x and 1.20x, respectively on the Class I and Class II certificates.
CONSTRUCTION ON TIME, NEARING COMPLETION: Balfour Beatty (formerly GMH Military Housing), the developer, completed all new construction and the renovation of units as planned and reports that the remaining demolition of units is 79% complete as of December 2014. The project is expected to be complete June 30, 2015. It is 96% completed overall relative to the original unit plan. The developer reports that the fourth draw of the government's guaranteed direct loan (GDL) is scheduled to be made in March 2015.
OCCUPANCY SOUND BUT WATERFALL TAPPED: The current occupancy for the combined three projects at Travis (CA) AFB, Tinker (OK) AFB and Fairchild (WA) AFB is approximately 95% as of October 2014 for on-line units as reported by the property manager. However, 11% of the units are being rented to other active military service members that are not stationed at the three subject bases as permitted by the tenant waterfall.
RECENT BAH CHANGES MIXED: Approximately two-thirds of the units in the portfolio fall short of the 10% aggregate assumption that was used in underwriting in terms of five-year BAH increases. While the bases received large BAH rate increases in 2008-2009, 2012-2013 and 2013-2014 saw BAH decreases especially at Travis AFB. This is somewhat mitigated by 160 additional revenue units which still remain on line generating revenue.
RATING SENSITIVITIES
BAH DECREASES: A future decrease in 2015 BAH rates and/or a reduction in the planned rate of growth for BAH which leads to lower operating revenues and debt service coverage levels could put negative pressure on the rating.
CONSTRUCTION DELAY: While not expected, failure to complete the entire construction plan which includes the demolition of units may affect the delivery of the final installment of the GDL which could negatively impact the rating on the 2008 series A2 notes.
DECREASED OCCUPANCY/INCREASED EXPENSES: Management's inability to maintain occupancy rates and/or control project operating expenses could negatively impact debt service coverage levels and put negative pressure on the rating.
CREDIT PROFILE
BASE INFORMATION
AMC West is comprised of three AFBs. Travis AFB is located in Solano County which is east of Fairfield, CA. Approximately 7,000 active duty personnel are stationed at Travis, and more than 7,000 civilians are employed at the base. Travis is home to the 60th Air Mobility Wing and handles more cargo and passengers than any other military air terminal in the U.S. Total end-state units at Travis are projected to be 1,134, or 47% of the transaction.
Tinker AFB is a major AFB in Oklahoma City, OK and its mission is to handle the ongoing maintenance demands of the airframes and engines of many of the sophisticated USAF aircraft. Military and civilian employees make up more than 26,000 persons living on and working at Tinker. Total end state units at Tinker are projected to be 660, or 27% of the transaction.
Fairchild AFB is located in the Spokane, WA area and is home to an air refueling mission and the USAF survival school among other units. The base employs more than 800 civilians and has more than 3,000 active duty military on base. Total end-state units at Fairchild are projected to be 641, or 26% of the transaction.
PROJECT INFORMATION
Bond proceeds provided funds for loans to privatize family housing units at the Travis, Tinker and Fairchild AFBs; funded the total development costs to build new units and renovate or rehabilitate existing units as determined by the U.S. Air Force; funded reserves and paid costs of issuance. The original plan was set up to build 837 new units, renovate 914 units, as well as operate and maintain 684 units built over the last 10 years, for a total of 2,435 family housing units at end state.
The certificates are structured with level debt service for the 40-year term after the interest-only period during the initial development period, or IDP. In addition to the bond proceeds, the U.S. Air Force is phasing in a GDL to pay off the construction loan as units become available for rent over the IDP and the developer has provided a $13.6 million equity contribution. The combined equity amount shows commitment on the part of the participants. The 2008 and 2009 A-1a certificates also benefit from a DSRF sized at MADS.
DEBT SERVICE COVERAGE LEVELS
The affirmation reflects actual DSCR of 1.79x for the series A1-a certificates and 1.67x for the series A-2 certificates (based on eight months annualized unaudited operating data for the three properties) as of Aug. 30, 2014. The DSCRs were 1.68x and 1.51x in 2012 and 1.70x and 1.58x in 2013 based on the respective audited financial statements. These ratios exceed the original projections which anticipated minimum DSCRs of 1.50x and 1.20x, respectively, on the Class I and Class II certificates.
PROJECT OCCUPANCY LEVELS
The current occupancy for the combined three projects at Travis (CA) AFB, Tinker (OK) AFB and Fairchild (WA) AFB is approximately 95% as of October 2014 for on-line units, as reported by the property manager. Management also reports that 11% of the units are being rented to other active military service members that are not stationed at the three subject bases per the tenant waterfall. They are from other branches of the military and therefore receive current BAH rates.
BAH RATES
Approximately two-thirds of the units in the portfolio fall short of the 10% aggregate assumption that was used in underwriting in terms of five-year BAH increases. While the bases received large BAH rate increases in 2008-2009, 2012-2013 and 2013-2014 saw BAH decreases especially at Travis AFB. This is somewhat mitigated by 160 additional revenue units which still remain on line generating revenue.
Fitch intends to monitor any changes in BAH as 2015 rates and the Department of Defense budget become available.
PROJECT CONSTRUCTION
The developer for the AMC West projects is Balfour Beatty Communities Air Force Management/Development LLC. Balfour Beatty is one of the largest military housing developers in the U.S., providing its services to 17 military housing privatization projects comprising 32,000 end-state units on 44 military bases. Balfour Beatty completed all new construction and the renovation of units as planned and reports that the remaining demolition of units is 79% complete as of December 2014. The project is expected to be complete June 30, 2015. It is 96% completed overall relative to the original unit plan. The developer reports that the fourth draw of the government's GDL is scheduled to be made in March 2015.
BRAC RISK
Travis, Tinker, and Fairchild AFBs have not been negatively affected by any of the five BRAC commission recommendations to the president (in 1988, 1991, 1993, 1995 and 2005); although the commission recommended moving some units to and from Fairchild in the 1993 report, the overall number of personnel moved was minimal. Since 1993, Fairchild has not been the subject of any BRAC action. Fairchild's role as a refueling installation and the additional air National Guard units now on base indicate the USAF's view that it is a mission-essential facility for its operations and training.
DEBT SERVICE RESERVES
The 2008 and 2009 A-1a certificates have a cash-funded DSRF fund sized at MADS. The presence of this cash reserve enhances bondholder security.
PROJECT MANAGEMENT
The projects will be managed by Balfour Beatty Communities Air Force Management/Development LLC which is an affiliate of the developer. Balfour Beatty has historically been a manager of military housing facilities and it brings a strong management team capable of strategic decision-making regarding the development's upkeep and rental stream. Once development has been completed for various projects, Balfour Beatty will manage over 32,000 military housing units.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by information from Balfour Beatty Communities.
Applicable Criteria and Related Research:
--'Rating Criteria for Military Housing' (Sept. 22, 2014);
--'Revenue-Supported Rating Criteria' (June 16, 2014);
--'Military Housing Snapshot' (Nov. 15, 2013).
Applicable Criteria and Related Research:
Military Housing Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=774288
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
Rating Criteria for Military Housing - Effective Sept. 23, 2010 to Sept. 20, 2012
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=557825
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=948915
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