OREANDA-NEWS. Fitch Ratings has assigned an 'AA' rating to Ohana Military Communities, LLC, HI's (OMCLLC) \\$60.5 million taxable military housing revenue series 2015 class I bonds.

Fitch also affirms the ratings on the following OMCLLC series:

--\\$213.5 million 2004 series class I bonds 'AA';
--\\$50.8 million 2004 series class II bonds 'A';
--\\$624.1 million 2006 series class I bonds 'AA';
--\\$173.1 million 2006 series class II bonds 'A';
--\\$224.6 million 2007 series class I bonds 'AA';
--\\$29.9 million 2007 series class II bonds 'A'.

The Rating Outlook is revised to Stable from Negative.

SECURITY
The bonds are secured by a first mortgage lien on all improvements, a pledge of all receipts of the project (predominantly made up of the monthly housing allowance or BAH) and an annual debt service reserve fund in the form of a surety bonds from unrated providers. Additionally, the new issue 2015 bonds have cash funded debt service reserve fund sized at maximum annual debt service.

KEY RATING DRIVERS

DEBT SERVICE COVERAGE RATIO: The debt service coverage ratio (DSCR) of 1.70x generated from existing projects and based on an unaudited financial statement for the combined class I bonds outstanding for the quarter ending June 2015 is within the expected range for the rating category. Based on the audited financials at December 31, 2014 the DSCR is 1.60x. A Fitch stress run approximates that the DSCR will demonstrate coverage of no less than 1.46x through 2020 for the class I bonds excluding revenues and expenses associated with the new units conveyed for this phase (phase VI) and including aggregate annual debt service projected for all class I bonds outstanding as all class I bonds are on parity.

OCCUPANCY INCREASED: The Outlook revision to Stable from Negative is partly due to the occupancy increasing from June 2014 to December 2014 from 89% to 95% combined with the annual basic allowance for housing (BAH) increase over the last five years.

BASIC HOUSING ALLOWANCE: Current BAH experienced cumulative increases at all ranks over the last five years of 25% to 46%. These increases continue to allow the project to accumulate large recapitalization reserves adding financial strength and viability to the overall project. Additionally, approximately 224 additional units funded from scope changes and cost underruns after phase IV was completed add to the aggregate revenues.

IDP: The Initial Development Periods (IDPs) for phases I through IV and additional units funded from cost savings were all completed. This new 2015 class I issuance starts a new IDP of 30 months for an additional 260 new end state units to be constructed on the Marine Corps Base Hawaii (MCBH).

CONSTRUCTION OF NEW UNITS: The new units are expected to be delivered in 2018. As the new units are all single family duplex style homes which are very similar to the last four phases, Fitch expects this phase to pose very little construction risk to the bondholders.

REMOTE BASE CLOSURE RISK: Fitch considers the importance of a permanent U.S. military presence in the Pacific and therefore considers closure risk of the Navy and Marine bases in Hawaii to be remote.

OTHER EQUITY: The cash contribution in the form of a \\$95.6 million in equity from the Navy adds financial strength to the new phase VI project. Additionally, the managing member will contribute \\$700 thousand.

RATING SENSITIVITIES

ABILITY TO MANAGE ALL PROPERTIES: Property management's ability to maintain high occupancy and control operating expenses for the privatized housing properties over the life of the Ohana Military Housing Revenue bonds is important for rating maintenance.

BAH RATE FLUCTUATION: Annual basic allowance for housing (BAH) rate changes at Hawaii location may have a negative impact on debt service coverage and may put negative pressure on the rating.

BRAC RISK: Although considered remote for the Navy operations in Hawaii, any base closure may have a negative impact on the ratings.

CREDIT PROFILE

BASE INFORMATION
The project has a built-in demand given that almost 53,000 personnel are on active duty on the island of Oahu, and MCBH has more than 12,800 active duty personnel assigned to
the MCBH at Kaneohe Bay (Kaneohe), which is the headquarters of Marine Corps. The demand for housing military families on Oahu is high due to the limited availability of comparable family housing units on the island.

PROJECT INFORMATION
This project is phase VI of an overall development that commenced in 2004. Phase VI anticipates that Forest City will be demolishing approximately 270 existing units on a site called Hana Like and replacing them with 164 new construction units and also building approximately 96 units on infill spaces in a neighborhood called Hawaii Loa.

Forest City has been managing phases I through IV of both the Navy and Marine Corp projects for both construction and property management of family housing since 2004 and is charged with this phase VI development in a sole source contract for this phase. The Navy will contribute \\$95.6 million in equity for the 260 new units being constructed in phase VI.

CONSTRUCTION
The new units are all single family duplex style homes which are very similar to the units delivered over the last four IDPs. Fitch expects this phase to pose very little construction risk to the bondholders. The plan is to demolish approximately half of the existing units in the Hana Like parcel, build new and then make ready for occupancy. Then demolish the other half of the Hana Like parcel and build the new units.

DEBT SERVICE COVERAGE
Debt service coverage is expected to be maintained at over 1.46x for the class I and 1.20x for the class II bonds annually after the IDP. This projection utilized an extreme stress case for the consolidated project by only adding the debt to the current configuration of housing units, without including any additional revenues from the new phase VI units. This stress case also assumed an occupancy ratio (lowest over the last five years) of 92% while incorporating a 0% BAH increase based on 2015 rates and a 2% operating expense escalation annually.

Other stress runs incorporating a 94% occupancy rate and a negative 1% BAH change along with a 2% operating expense increase still maintain a 1.54x class I coverage and a 1.26x class II coverage ratio which supports the Stable Outlook.

BAH RATES
BAH rates have increased dramatically over the five year period from 2010 to 2015. Ranks of E-1 to E-4 received a 46% increase over the same period. Going forward Fitch expects market rental rates to increase slightly in the 1 - 2% range based on third party projections.

Rental revenues are predominantly from the monthly housing allowance deposited into a lock box. The monthly housing allowance, known as the BAH, is a cash allowance based on local market rental rates and is an integral part of the compensation of U.S. military personnel.

BRAC RISK
The importance of a permanent U.S. military presence in the Pacific, which resulted in the establishment of the Navy facilities at Pearl Harbor in the last quarter of the nineteenth century, has not diminished in the second decade of the 21st century as demonstrated by the U.S. Government's strategic rebalancing of forces to the Pacific. Thus, Fitch expects that the Navy and Marine Corps will remain a significant presence in Hawaii for the foreseeable future.

There has been no additional BRAC information since the original rating assignment. Projected cuts related to the U. S. Army in Hawaii amount to approximately 1,200 soldiers and should not have a major impact on demand at either the Navy or Marine bases. Other third party projections predict Navy and Marine personnel to increase slightly in Hawaii.

DEBT SERVICE RESERVES
There is a cash-funded debt service reserve fund (DSRF) based on the maximum annual debt service for the 2015 Series of Bonds. Prior bond series have sureties from unrated providers in the place of a cash funded DSRF. Fitch does not rate the surety providers, therefore these sureties are not factored into the rating. In the unlikely event of a draw on the debt service reserve funds, the draws would be first against the cash debt service reserve applicable to all series and then against the sureties.

PROJECT MANAGEMENT
Forest City has developed and managed over 13,800 units at various military installations, and all are performing well.

The limited liability corporation, OMCLLC, was set up to finance, build, manage and maintain over 6,800 military housing units and is now adding a phase VI for an additional 260 units over a 50 year period (commenced in 2004) at the two military installations.