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Fitch Affirms Toledo-Lucas County Port Authority, OH (Crocker Park Pub Improv Proj) at 'BB'

July 3, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'BB' rating on the $66.23 millionToledo-Lucas County Port Authority, OH (Crocker Park Public Improvement Project) special assessment revenue bonds, series 2003.

The Rating Outlook is Stable.

SECURITY

The bonds are special limited obligations payable by the issuer from special assessments levied on the assessment property by the city of Westlake. A debt service reserve fund equal to maximum annual debt service (excluding the final maturity) is fully funded through a guaranteed investment contract.

KEY RATING DRIVERS

SINGLE-PAYOR RISK: Pledged special assessments are payable from a single payor on property comprising a small, highly concentrated geographic area.

PROJECT CASH FLOWS STILL WEAK: Despite high occupancy rates, the project does not generate cash flow sufficient to cover mortgage payments. Project cash flows have improved from very weak 0.57x coverage of the substantial mortgage payment in 2011; however, coverage in fiscal 2013 of 0.8x was down somewhat from 0.9x in fiscal 2012.

PROJECT OBLIGATIONS CURRENT: The project generates enough revenue to cover property taxes and special assessments, although coverage of mortgage payments is insufficient.

LIEN SUPERIOR TO MORTGAGE OBLIGATION: Special assessment payments, equal to at least annual debt service through final bond maturity regardless of the assessed value of property, are on parity with property taxes and are senior to the sizable mortgage payments.

HIGH LEVERAGE: Fitch-estimated loan-to-value has moderated from very high levels to a still elevated 1.18:1. This combined with the cash-flow shortfall underscores Fitch's concerns about the developer's continued willingness and ability to continue to make special assessment payments, although Fitch notes that coverage trends are generally positive.

RATING SENSITIVITIES

FAILURE TO PAY PROPERTY OBLIGATIONS: Failure to pay special assessments or the subordinate mortgage payments on time would cause a downgrade.

CONTINUED COVERAGE EROSION: Continued lack of sum sufficient cash-flow coverage of mortgage payments could put further downward pressure on the rating.

MORTGAGE WITH SPECIAL SERVICER: Placement of the mortgage with a special servicer would indicate severe stress, but could ultimately be a stabilizing factor at a lower rating level.

LACK OF SUFFICIENT OR TIMELY INFORMATION: The inability to receive information pertinent to the rating of these obligations by Fitch on a timely basis could result in a change or withdrawal of the rating.

CREDIT PROFILE

SINGLE PAYOR RISK

The bonds are secured by special assessments payable by a single payor, Crocker Park, LLC (the developer/owner), an affiliate of Robert L. Stark Enterprises. The special assessment property is within an established retail area, Crocker Park, in affluent Westlake, Ohio (rated 'AAA' by Fitch). The area has complementary retailers, office and residential units and retains a competitive position in the region. The assessment property is composed of the retail portion of Crocker Park with over 630,000 square feet of retail space anchored by several major retailers, in addition to office space and residential properties.

MATURE PROJECT WITH HIGH OCCUPANCY RATES

All phases of the development anticipated at the time of the bond financing have been completed. Occupancy rates recently have been quite strong, ranging from 92% to 100%. Development continues in areas adjacent to the assessment property. Construction of a new headquarters for American Greetings is expected to result in the addition of 1,500 jobs and should further strengthen consumer demand at the mall.

The development generates cash flow insufficient to support large mortgage payments, after payment of special assessments, despite the high occupancy rates. Mortgage coverage improved to 0.89x in 2012 and 0.8x in 2013 after sinking to 0.57x in 2011 from 0.75x in 2010; however, the developer is current on mortgage payments.

LIEN SUPERIOR TO MORTGAGE OBLIGATION

The special assessments are on parity with real estate taxes and are senior to an outstanding mortgage on the property. Special assessments were authorized in aggregate maximum annual installments of $6 million for the term of the bonds and are levied annually in an amount sufficient to pay annual debt service. Fitch remains concerned about the current or any future owner's incentive to continue to make special assessment payments, given the high overall loan-to-value ratio of 1.18:1, using Fitch's conservative stressed value of the entire development.

STRUCTURAL PROTECTIONS

Fitch derives some comfort from the superiority of the lien to those of larger obligations; however, the weak coverage of the mortgage obligation introduces risk of payment disruption should the loan go into foreclosure. Fitch believes the presence of a master servicer (and the addition of a special servicer, if necessary), as part of the mortgage trust securitization may prove to be a stabilizing factor, should the trust have sufficient resources and choose to provide liquidity to bridge any payment interruption during a work-out. The 'BB' rating does not assume any such external support from the trust.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, Prudential Asset Resources, Bond Counsel, Underwriter Counsel, Trustee.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=837936

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Arlene Bohner

Senior Director

+1-212-908-0554

Fitch Ratings, Inc.

33 Whitehall St.

New York, NY 10004

or

Secondary Analyst

Eric Friedman

Director

+1-212-908-9181

or

Committee Chairperson

Amy Laskey

Managing Director

+1-212-908-0568

or

Media Relations

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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