Fitch Ratings has placed under Rating Watch Negative four bonds supported by Florida Housing Finance Corp.'s affordable housing guarantee fund even though the mortgage loans that back these bonds are being restructured.
The ratings agency said the single-asset multifamily bonds will remain under Rating Watch Negative until loan restructurings are complete because the resulting asset-debt ratios may not meet Fitch’s criteria.
Fitch expects a typical single-asset multifamily transaction with a mortgage guarantee to maintain an asset parity ratio of no less than 101% throughout the term of the bonds. The bonds are downgraded if assets do not exceed bond liabilities in the case of a mortgage default.
The weak economy throughout the state of Florida is affecting the bond financing of these multifamily projects.
Florida is still struggling with unemployment issues that keep the vacancy rate in many apartment buildings at really high levels, said Fitch Ratings senior director analyst, Charles Giordano. Hence, these bonds are at risk of a downgrade.
Fitch placed these bonds under Rating Watch Negative in August 2011 after the bonds were downgraded to A- in 2009.
The Florida bond series consists of the FHFC (Woods of Vero Beach Apartments Project) hsg rev bonds ser 1999N-1 A-, the FHFC (Wentworth II Apartments Project) hsg rev bonds ser 1999A A-, the FHFC Westwood Apartments) hsg rev bonds ser 2001A-1&A-2 A- and the FHFC (Wyndham Place Apartments) hsg rev bonds ser 2000W-1&W-2 A-.
Analysts expect the second round of funding approved for these multifamily developments under the State Apartment Incentive Loan Funding for Extremely Low-Income program “may be insufficient” because it will be used to redeem only a portion of the bonds.
Since bond redemptions are scheduled between July 1 and Nov. 1, 2012, the loan and bond amounts will be amended over the next few months.
If loans are modified and the mortgage notes are amended, a portion of the bonds is redeemed changing the asset debt or the asset parity ratio.
As a rule loan restructurings or modifications help preserve and even improve the rating, says Giordano. Reviews of each bond transaction will determine the rating level of the bonds after the loan restructuring is completed.
Fitch is in the process of reviewing cash flows for each transaction. Since not all documents related to the loan restructurings are available yet, according to Giordano, there is an equal probability for the final rating to improve or deteriorate.
