Trinity Affordable Housing Corp., IL Ratings Lowered To #BB-# On Declining Performance, Debt Outlook Negative

Stocks and Financial Services Press Releases Tuesday June 5, 2018 10:07
CENTENNIAL--5 Jun--S&P Global Ratings

CENTENNIAL (S&P Global Ratings) June 4, 2018--S&P Global Ratings removed from CreditWatch its ratings on the Public Finance Authority, Wis.' multifamily series 2015 A and 2015 A-T housing revenue bonds (Trinity Affordable Section 8 Assisted Apartments Project), where they were placed on Dec. 29, 2017 with negative implications. At the same time, we lowered the long-term ratings on the bonds to 'BB-' from 'BB+'. The outlook is negative.

The rating action and negative outlook reflect our view of:
  • The decline in the property's poor operating performance from previous years due largely to issues at one of the five properties, which has brought down the entire pool.
  • DSC has decreased significantly in recent years with the pool operating at 1.0x and 1.01x maximum annual debt service (MADS) in the last two years.

"The negative outlook reflects, in our view, the potential for the property's operating performance to continue declining, further decreasing Trinity's ability to maintain sufficient debt service coverage levels," said S&P Global Ratings credit analyst Joanie Monaghan.

On Sept. 8, 2017, the owner submitted a voluntary filing to the Municipal Securities Rulemaking Board regarding the executed conditional purchase and sale agreements for the pool projects. The anticipated sale is a result of a third-party consultant's recommendation in response to the breach of the debt service coverage (DSC) covenant in the project's loan agreement associated with the bonds in March 2017. Under the loan agreement, the borrower was required to engage a third-party management consultant to recommend certain actions. The report attributed the decline in DSC at the Northeast View project to a collapse in the main sewer line at one of the properties, a fire at another building on the same property, and the former management company's leasing practices that resulted in increasing deferred maintenance and ongoing renovations. The report also recommended pursuing tax credit financing, property-wide capital improvements, and unit upgrades. According to the owner, tax credit financing was not possible, but capital improvements and unit upgrades in excess of $1 million were performed. As of the date of this report, the potential sale is not set to close until July 2018 and is still awaiting approval from the U.S. Department of Housing and Urban Development (HUD), and for the buyer to finance the acquisition.

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