Fitch Affirms Cheyenne Housing Auth's (WY) Foxcrest II 2004 Housing Revs at 'BBB-'; Outlook Negative
NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the following Cheyenne Housing Authority (CHA; the authority) housing revenue bonds:
--$2.35 million CHA housing revenue bonds (Foxcrest II Project), series 2004 at 'BBB-'.
The Rating Outlook is Negative.
The bonds are limited obligations of the authority and are mainly secured by the project revenues and reserves pledged to the bond trust estate.
KEY RATING DRIVERS
CONTINUED SUPPORT FROM AUTHORITY: The authority continues its support, in the form of cash transfers, to the project to maintain a minimum 1.30x debt service coverage level. Actual debt service coverage levels (without CHA's cash transfers) increased slightly in fiscal year (FY) 2013 to 1.14x from 1.13x in FY 2012.
REDUCED UNRESTRICTED NET POSITION: The Negative Outlook primarily reflects CHA's overall unrestricted net position which decreased to $5.1 million in FY 2013 from $7.1 million in FY 2012; however, the authority has maintained its covenant to maintain a minimum 1.30x debt service coverage ratio on the project by providing transfers from its unrestricted assets.
STRONG RESERVE FUNDS: The project has debt service reserves which are currently funded at 12% of bonds outstanding which are in excess of indenture provisions stipulating a minimum reserve level of 10% of bonds outstanding. Additionally, the authority increased the amount of unrestricted assets allocated to the property to $213 thousand in FY 2013 from $171 thousand in FY 2012.
INCREASED OCCUPANCY: Foxcrest II management increased average occupancy levels to 96.1% in calendar year 2013 which is an increase from the 91.9% average occupancy the project had in calendar year 2012.
DISCONTINUED SUPPORT FROM AUTHORITY: Any termination of financial support from the authority to maintain its covenant of a 1.30x minimum debt service coverage on the project would likely result in a downgrade of the bonds.
REDUCED AGENCY UNRESTRICTED POSITION: Despite FY 2013 decreases to CHA's unrestricted net position, the agency retains enough unrestricted funds to adequately support its current rating level. However, should unrestricted levels continue to decrease there could be negative pressure on the bond's rating.
DECREASED DEMAND: Any decrease in demand for senior living units could put negative pressure on future occupancy rates and project net operating revenue levels. This could increase reliance on the authority for financial support to maintain minimum debt service coverage levels and put negative pressure on the bond's rating.
Fitch's rating approach for housing bonds secured by the revenue from a single multifamily housing project involves the analysis of the following: the pledged revenue and historical debt service coverage ratio for the project; the competitive operating environment for the subject property; the debt profile and legal structure of the transaction; and a qualitative analysis of management oversight.
Cheyenne Housing Authority was established in 1971 to help address the low income housing needs of the community. The authority is governed by a five member board of commissioners which is appointed by the mayor and city council. CHA serves as property manager for 800 units and administers over 1,500 Section 8 vouchers. The authority itself is not rated by Fitch.
Foxcrest II is a 32-unit senior housing project built in 2004 which is located in Cheyenne, WY. The project consists of eight four-plex buildings, with each building containing only one floor. The units are available to tenants at or below 110% of area median income. The current rent level of the project remains flat at $825 per unit. The project does not receive any federal or state subsidy and the mortgage is not insured. The project does maintain property insurance and personal liability insurance of up to $1 million per occurrence.
The 'BBB-' rating primarily reflects the continued support from CHA, the strong debt service reserve levels, and current project revenues. The authority has covenanted to maintain a 1.30x minimum debt service coverage on the project by either raising rents or providing cash transfers to the project. Since FY 2010, the authority has transferred amounts ranging from $29 thousand to $36 thousand to maintain this covenant. Management reports that a similarly sized transfer is expected for FY 2014. Actual debt service coverage levels (without issuer transfers) increased slightly in FY 2013 to 1.14x from 1.13x in FY 2012. Given the recent reliance on CHA transfers to maintain minimum debt service coverage levels, any termination of this support from the authority would likely result in a downgrade of the bonds.
The Negative Outlook primarily reflects the decrease in the authority's unrestricted net position which decreased in FY 2013 to $5.1 million from $7.1 million in FY 2012. While this decrease is a credit negative to the rating, the current unrestricted net position levels are adequate to maintain the current rating as annual transfer amounts still represent a small portion of the authority's overall unrestricted net position. However, should the authority's unrestricted net position continue to decrease there could be negative pressure on the rating.
Foxcrest II management increased average occupancy levels to 96.1% in calendar year 2013 which is an increase from the 92%-94% average occupancy rates the project had in calendar years 2010-2012. This increase in occupancy, if maintained, should provide the project with higher income levels going forward and should reduce the reliance on authority transfers for maintenance of minimum debt service coverage levels. Additionally, the project has debt service reserves which are currently funded at 12% of bonds outstanding which are in excess of indenture provisions stipulating a minimum reserve level of 10% of bonds outstanding.
Additional information is available at www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 03, 2013).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria