OREANDA-NEWS. Fitch Ratings has affirmed the 'AA-' rating on the $103.5 million Fort Jackson Housing LLC military housing taxable revenue bonds 2008 Series A bonds.

The Rating Outlook has been revised to Negative from Stable.

SECURITY

The bonds are secured by a first mortgage lien on all improvements, a pledge of all receipts of the project (which are predominantly made up of the monthly housing allowance or BAH) and a cash-funded debt service reserve fund.

KEY RATING DRIVERS

ADEQUATE DEBT SERVICE COVERAGE: The rating on the bonds is being affirmed and the Outlook revised to Negative from Stable. Management's projected 2016 debt service coverage ratio (DSCR) including capitalized interest is 1.35x, reflecting the twelve-month 2016 budgeted data as of
Jan. 2015. This projected coverage level is the same as the original proforma underwriting of 1.35x.

OCCUPANCY BELOW EXPECTATIONS: The Negative Outlook is based on occupancy levels that are not in line with originally underwritten projections. In 2014, average occupancy for the 12 month period ending Dec. 31 was 90.6% and average occupancy for the six months of 2015 improved slightly to 91.3%.

Management projects that in FY 2016 the project will face the same occupancy challenges and will continue to rely on the tenant waterfall to maintain higher occupancy which is the primary reason for the outlook change.

BAH RATES FLAT: The 2016 BAH rates demonstrated a weighted average .005% increase overall from 2015 rates for Fort Jackson. This increase combined with the 91.3% average occupancy rate as of June 2015 will challenge the property manager to maintain DSC above 1.35x for the 12 month period January 2016 to December 2016.

CASH FUNDED DEBT SERVICE RESERVE FUND: The bonds have a cash funded debt service reserve fund sized at maximum annual debt service. The presence of this cash reserve enhances bond holder security.
CONSTRUCTION COMPLETE: The final construction schedule was met and the project was completed on time.

RATING SENSITIVITIES

MAINTAIN PROJECTED OCCUPANCY WITH ACTIVE DUTY MILITARY TENANTS: A lower than projected occupancy rate for available units combined with a large portion of waterfall tenants paying less rent than the lowest BAH rate could result in debt service coverage below 1.35x which could cause a negative rating action.

PROJECT MANAGEMENT CRITICAL: Management's ability to maintain and grow current occupancy levels and/or control project operating expenses is important to the stability of the project.

FUTURE BAH VOLATILITY: Future material BAH rate decreases may lead to decreased project revenue and debt service coverage.
EXPENSE MANAGEMENT: Management's inability to control operating expenses may affect debt service coverage and put negative pressure on the rating.

CREDIT PROFILE

The affirmation of the bonds' rating is primarily based on the continuation of the revenue stream of the project which incorporates the revenue from the military housing units. The Negative Outlook is largely due to the waterfall tenants comprising 13% of the project's occupancy rate. Since the waterfall tenants pay a lower rate than BAH, the DSCR may not be maintained at the 1.35x coverage threshold.

BASE INFORMATION

Fort Jackson is the largest and most active Initial Entry Training Center in the U.S. Army, training 34% of all Soldiers and 69% of the women entering the Army each year. It is located immediately east of the Columbia, SC City limits in Richland County. It is home to the U.S. Army Soldier Support Institute, the U.S. Army Chaplains Center and School and the Defense Academy for Credibility Assessment (formerly the D0D Polygraph Institute).

More than 3,500 active duty soldiers and their 12,000 family members are assigned to the installation. Fort Jackson employs almost 3,500 civilians and provides services for 36,000 retirees and their families. An additional 12,000 students attend courses annually.
PROJECT INFORMATION

Bond proceeds provided a portion of the project's total development costs, funded reserves and costs of issuance for the project. In addition to the bond proceeds, the U.S. Army provided an equity contribution of $58.9 million and the developer, Balfour Beatty Military Housing Development, LLC, made a $3 million equity contribution in 2013.

As part of the financing, 1,162 units were conveyed, and at the end of the IDP the end state totaled 850 units. As part of the development plan, 916 units were demolished, a total of 610 new units were added, existing housing facilities were renovated or converted to provide 119 units and capital repairs were performed on 121 units.

CONSTRUCTION

Construction was completed on schedule with the IDP ending in 20XX. . However, the scope of the project was reduced twice by major decisions from the Army to downsize the amount of units originally planned for renovation from 119 to 38 and instead performed capital repairs on an additional 121 existing units.

DEBT SERVICE COVERAGE LEVELS

Coverage was originally projected to be over 1.35x; actual coverage was 1.39x in June 2015 (Trimont source). Actual coverage based on year end 2014 data is 1.46x. Data conveyed by the bondholder representative, Trimont reports show coverage at 1.39x at the end of qtr 2, June 2015. Balfor Beatty budgeted projections for next year have DSCR at 1.35x, including capitalized interest, for the 12-months ending December 2016.

DEBT SERVICE RESERVES

Bondholder security is enhanced by a full-year cash-funded DSRF sized at the maximum annual debt service.

BAH RATES

The 2016 Basic Allowance for Housing (BAH) rates demonstrated a weighted average .005% increase overall from 2015 rates for Fort Jackson.

BRAC RISK

There is no new BRAC information since the last commission in 2005. While it was recently reported that the base will lose about 180 military personnel, this only equates to 5% of the current military population. The 2005 BRAC called for a modest increase in permanent military jobs at the base, with approximately 600 military and 180 civilian jobs expected to be added. Specifically, Fort Jackson received the Drill Sergeant School as a result of consolidation from Fort Leonard Wood in Missouri and Fort Benning in Georgia. The base also received the Joint Training Center for Excellence for religious training and education.

OCCUPANCY

As of June 2015, occupancy for Ft. Jackson was 92.9% and the average occupancy year to date was 91.3%. Approximately 13% of the occupied units are being rented to retired military personnel / department of defense and or government employees (waterfall tenants). Those rentals are allowed under the tenant waterfall if the units are not being occupied by military personnel on post.

MANAGEMENT

The owner, property and development manager for the project is Balfour Beatty Management. Balfour Beatty has been a manager of military housing facilities, and it brings a strong management team capable of strategic decision-making regarding the development's upkeep and rental stream.

Balfour Beatty continues to manage a large number of military housing units at numerous military bases. Management strength and experience of the property manager should enable the Fort Jackson project to maintain occupancy and financial stability.