Proposed Pentagon Budget May Hurt Military Housing Bonds: Fitch

A proposal to limit increases in basic allowances for housing and reduce military personnel could hurt the performance of some military housing bonds, Fitch Ratings warns in a recent report.

The Pentagon may cut Army personnel from the current 520,000 to somewhere between 440,000 and 450,000 and thereby sap housing demand at Army bases, according to the rating agency.

In addition, the proposed Department of Defense budget may retire the A-10 Warthog and U-2 reconnaissance aircraft at some facilities and as a result reduce active-duty personnel at Missouri's Whiteman Air Force Base.

Military housing at this base generates 27% of the revenue that supports bonds issued by Western Group Housing LP, Fitch said, so these budget cuts are bound to weaken the bonds.

Similarly, the Beale Air Force Base in California could lose the U-2 aircraft and therefore cause a drop in revenue to support the bonds. Housing units in this base account for 16% of the cash flows for the Western Group Housing bonds.

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