MOODY’S DOWNGRADES EVANSVILLE, IN MULTIFAMILY HOUSING REVENUE BONDS (GNMA COLLATERALIZED MORTGAGE LOAN – VILLAGE COMMUNITY PARTNERS III, LP PROJECT) SERIES 2001 FROM Baa1 TO Ba2
Global Credit Research – 16 Jun 2011
APPROXIMATELY $1.5 MILLION OF OUTSTANDING DEBT AFFECTED
Village Community Partners III, L.P.
Fully Supported
IN
Opinion
NEW YORK, Jun 16, 2011 — Moody’s Investors Service has downgraded Evansville, IN Multifamily Housing Revenue Bonds (GNMA Collateralized Mortgage Loan – Village Community Partners III, LP Project) Series 2001 from Baa1 to Ba2, affecting approximately $1,481,000 of outstanding debt.
RATING RATIONALE
The bonds are primarily secured by revenues from mortgage-backed securities (“MBS”) guaranteed as to full and timely payment of principal and interest by the Government National Mortgage Association (“GNMA”). Other sources of funds, such as certain accounts held with the trustee and investment earnings on those accounts, also provide security.
The rating action results from a projected revenue deficiency originally identified in our Special Comment titled “Moody’s Completes Review of Housing Transactions Affected by Low Reinvestment Earnings” published in June 2010. A recent cash flow review, assuming 0% reinvestment rates consistent with both the current interest rate environment and our methodology update titled “Change in Interest Rate Assumptions for Housing Transactions Which Rely on Investment Earnings Prompted by Unprecedented Low Interest Rates” published in November 2009, demonstrates that the projected stress date has not changed and is now less than 3 years into the future. Pursuant to our methodology, the transaction’s current cash flow projections are not consistent with its former rating.
DETAILED CREDIT DISCUSSION
We project numerous cash flow insufficiencies throughout the life of the transaction, the earliest of which could occur in 6/2014. Although frequent, the expected losses of these shortfalls are very small relative to the debt service payable during the respective periods. The sum of all present value losses is approximately $4,765, or 0.32% of outstanding bonds.
The projections used to determine the expected loss and stress date assumes 0% reinvestment rates throughout the life of the deal. Higher interest rates would benefit the transaction by providing additional returns on excess cash that would be used to fulfill debt service. At this time we have identified break-even reinvestment rates of approximately 0.25% and 2.30% to avoid a default in 2014 and throughout the life of the deal, respectively.
METHODOLOGY
The principal methodology used in this rating was Methodology Update: Ratings that Rely on Guaranteed Investment Contracts published in December 2008.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following: parties involved in the ratings and public information.
Moody’s Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.
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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
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Analysts
Shane Mullin
Analyst
Public Finance Group
Moody’s Investors Service
Gregory W. Lipitz
Backup Analyst
Public Finance Group
Moody’s Investors Service
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