The Rating Outlook is Stable.
The bonds are special limited obligations payable by the issuer from special assessments levied on the assessment property by the city of
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.
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.
SINGLE PAYOR RISK
The bonds are secured by special assessments payable by a single payor,
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
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,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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