Fitch Ratings downgrades Toledo-Lucas County Port Authority, OH (the Port Authority) Northwest Ohio Bond Fund's (the bond fund) outstanding $87.5 development revenue bonds to 'BBB-' from 'BBB+'. The TLCPA bond fund program remains on Rating Watch Negative, reflecting Fitch's ongoing concerns about the region's economic pressures and its impact on the pool participants' ability to make timely loan repayments, as well as the bond fund's ability to achieve significant recoveries on loans if they were to default. Fitch is closely monitoring the performance of two of the pool's borrowers that are presently delinquent with regards to recovery, either through a resumption of loan payments or collateral security on the loans.
In rating the TLCPA bond fund program, Fitch applied its portfolio credit model (PCM) that it uses for other market sectors. The PCM is a stochastic model that takes into account default probability, recovery rates and correlation of pool assets, among other factors. For additional information on the PCM, see 'Global Rating Criteria for Corporate CDOs', dated April 30, 2008, available on Fitch's web site www.fitchratings.com. In addition to the PCM, Fitch considers certain qualitative factors such as the ongoing support of the Port Authority through its commitment of unrestricted designated reserves.
Currently, the bond fund's reserves total $28.1 million or 32.1% of the bonds outstanding. While the program reserves are funded through a combination of cash and letters of credit (from the state and the sponsoring entity), the primary reserves are funded by each borrower equal to 10% of the original bond principal. Cash-funded primary and additional reserves, totaling $5.7 million, have been discounted in Fitch's analysis due to concerns that the cash reserves could be subject to an automatic stay in the event of a bankruptcy of the borrower.
The Port Authority established the bond fund in 1988 to advance economic development efforts in the region. Currently, the bond fund has 23 participants, with outstanding bonds totaling $87.5 million. The Port Authority remains the program's largest obligor, representing 16.6% of the total portfolio.
All of the bond fund bonds are secured by lease or loan payments by the pool participants and reserves. Shortfalls in bond payments due to loan or lease defaults are made up first from the defaulting borrowers' primary reserves, additional reserves, and collateral proceeds, then from program reserves, and finally from any remaining primary reserves.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
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James
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