TEXT-Fitch affirms Fort Jackson Housing, S.C. tax revs at 'AA-'

Tue Feb 5, 2013 4:26pm EST

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Feb 5 - Fitch Ratings has affirmed the rating on the $103.5 million Fort
Jackson Housing, LLC (SC) taxable revenue bonds, 2008 series A (the bonds) at
'AA-'. The Outlook for the bonds is Negative.

SECURITY

The bonds are secured by a first mortgage lien on all improvements and a pledge
of all receipts of the 850 unit family project at Fort Jackson located east of
Columbia, SC. The receipts are predominantly made up of the monthly housing
allowance or basic allowance for housing. The bonds are also secured by a
cash-funded debt service reserve fund.

SENSITIVITY/KEY RATING DRIVERS

CURRENTLY ADEQUATE DEBT SERVICE COVERAGE: Actual debt service coverage for
trailing 12 months operating data as of Dec. 31, 2012 demonstrates coverage of
1.40x which exceeds the original underwriting projection of 1.29x coverage.
However, debt service is expected to increase in 2014 as originally planned and
revenue needs to increase in the near term to address that increase and to meet
future coverage projections.

BAH INCREASED: The Basic Allowance for Housing (BAH) at Fort Jackson increased
an average of 8.6% in 2013 from 2012. Additionally, BAH increased at a rate of
18.6% on average from 2008 - 20013. These increases far outpace the underwriting
assumption of 2% annual increases in BAH through the IDP, however the positive
impact of this on revenue is somewhat mitigated by occupancy issues which have
created a need to draw on the tenant waterfall and rent some units at different
BAH rates.

CONSTRUCTION NEAR COMPLETION: The project is 95% complete. All of the 610 new
units have been constructed. 38 units are beginning renovations which will be
the remaining work to be done on or before the end of the IDP in October 2013.

ADDITIONAL CHANGE IN SCOPE: The project experienced a second change in scope in
May 2012 to make funds available for infrastructure and asbestos abatement
related change orders. This reduction in the scope of work will reduce the
numbers of units which will receive renovations to 38 units from 78 and make $2
million available. This could negatively affect the demand for these units which
will not receive renovations and in turn overall project occupancy.

TENANT WATERFALL DRAWN UPON: While the project has been averaging approximately
95% occupancy as of Sept 2012, the tenant waterfall has been extended to allow
for 14% of unit rentals to retired military personnel, DoD civilians and
families from Shaw AFB.

CASH FUNDED RESERVE: Debt service reserve fund is sized at maximum annual debt
service and cash funded.

WHAT COULD TRIGGER A RATING ACTION

INABILITY TO INCREASE REVENUE BY 2014: The continuation of a lower than
projected occupancy rate for available units and the renting of units to tenants
outside of the originally intended audience in the near term will likely create
negative rating momentum. Additionally, capitalized interest is being reduced to
zero as planned and will no longer be available to bolster debt service coverage
in 2014.

FUTURE BAH VOLATILITY: Decreases in future BAH rates may lead to decreased
project revenue and debt service coverage.

CREDIT PROFILE

The 2008 series A bonds were privately placed in October 2008. The proceeds were
used to provide a portion of the total development costs for constructing and
renovating military family housing resulting in an end-state of 850 units at
Fort Jackson and funding for reserves.

The project is experiencing an average occupancy of 94%. This occupancy
statistic includes the 14% of units that are being rented to individuals from
the tenant waterfall which include retirees and civilians who were not part of
the originally intended audience.

In 2014 capitalized interest will be reduced to zero as originally planned and
debt service will increase from approximately $7.3 million to $7.7 million; and
therefore achieving high occupancy levels with tenants from the originally
intended audience is critical to reaching projected rental revenue levels and
debt service coverage ratios.

While construction is on schedule, the scope of the project was reduced twice by
Major Decisions from the Army to downsize the amount of units originally planned
for renovation to 38 from 119. As a result of this change in scope, a total of
81 units will not receive any work and therefore may be less desirable to
potential tenants which may in turn affect occupancy and debt service coverage
ratios.

Additional information is available at www.fitchratings.com' . The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

In addition to the sources of information identified in the Revenue-Supported
Rating Criteria, this action was additionally informed by information from
Trimont Real Estate Advisors.

Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 12, 2012);
--'Rating Criteria for Military Housing' (Sept. 20, 2012).

Applicable Criteria and Related Research:
Military Housing Rating Criteria
Revenue-Supported Rating Criteria
FILED UNDER:
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