Fitch Rates Cleveland-Cuyahoga Cnty Port Auth, OH's $37.9M Revenue Bonds 'BBB'

October 6, 2008 6:45 PM EDT

CHICAGO--(BUSINESS WIRE)--

Fitch Ratings assigns a 'BBB' rating to Cleveland-Cuyahoga County Port Authority's approximately $37.9 million special assessment/tax increment revenue bonds, series 2008 (Garfield Heights, Ohio - Bridgeview Crossing Project). The bonds will price via negotiated sale as early as Oct. 20, 2008. The bonds are special obligations of the authority, payable primarily from service payments collected from all tax parcels within the tax increment financing district. If tax increment payments are not sufficient, special assessments are required to be collected on certain assessed property. Proceeds will finance public improvements relating to the Bridgeview Crossing retail development; capitalized interest through June 1, 2011; a bond reserve fund; and costs of issuance. The Rating Outlook is Stable.

The 'BBB' rating reflects the priority of special assessment payments, which are on parity with real estate taxes and have a superior claim to property mortgages and other financial obligations; provision of a letter of credit that limits exposure to construction risk and provides for bond repayment in the event the development's anchors fail to open; and the near-final status of leases with anchor tenants (executed simultaneously with bond closing) and the majority of other leases for the retail project. Credit concerns include a weak property value to assessment lien ratio, the long-term viability of retail projects given the weakness of the local and regional economy and the relatively small special assessment base from which to derive debt service payments. Fitch's rating factors in tax increment financing (TIF) payments, but since TIF revenue can decline and may be insufficient to fund debt service payments, the rating is based primarily on the ability to collect special assessments.

The Bridgeview Crossings development is a 78-acre retail development site located along Interstate 480 about 15 minutes southeast of Cleveland, Ohio. Construction risk is mitigated by a letter of credit from Huntington Bank (currently rated 'A-' by Fitch) equal to bond par, less the reserve, ensuring that bondholders are protected if the project is not completed. The letter of credit can be partially and fully released upon completion of certain construction milestones, but must be in place until three anchor tenants are open and the project is 90% complete. Upon issuance, a bond reserve equal to maximum annual debt service of all years other than the final year will be created. No additional parity lien bonds are permitted.

The project was approved by 76% of voters in the city of Garfield Heights (the city) to spur economic development along the city's western boundaries. The development includes a Target, Lowe's, JC Penney's, grocery and clothing stores, financial services offices, and medical and health services. Project designers expect the retail establishments will attract shoppers in an area well beyond the immediate Cleveland suburbs. The project is also the largest in the local developer's prior retail experience: Snider-Cannata is a real estate development and investment firm based in Garfield Heights, and prior projects include smaller retail establishments in the same geographic area.

The TIF area includes the entire development, while special assessments may only be levied on the developer-owned parcel. Thus, the total property value subject to special assessment equals about 1.4x of the par amount of the bonds. Cuyahoga County collects the tax increment and special assessment payments and transfers the payments to the city, who remits to the trustee. The payments have been structured to allow adequate time between the transfer of service payments to the trustee and the debt service due date. Each year, an outside administrator, Argus Growth Consultants, Ltd., determines if tax increment payments are sufficient, and if not, notifies the trustee that the shortfall will be covered by special assessment payments.

The Cleveland area economy has diversified over the past two decades from significant durable goods manufacturing toward the service industry, particularly education and health care. Despite the progress toward diversification, project concerns remain because of the area's above-average unemployment rates and below-average wealth levels.

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.

Source: Fitch Ratings

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