Fitch: US Military Housing Bonds Face Long-Term Pressure

NEW YORK--(BUSINESS WIRE)-- The decline in US Army personnel may become a long-term risk for military housing bonds (MHB), Fitch Ratings says. However, the planned 8% reduction (approximately 40,000 US Army staff) announced last week will not present a short-term risk as only five installations involved in the plan secure Fitch-rated MHB.

The plan will affect 30 Army installations. There are 25 bases throughout the military branches that secure Fitch rated bonds, but only five are on the list planned for changes. While one base will gain a small amount of personnel in the plan, the other four will lose approximately 5-6% of their military personnel.

Changes of this magnitude are unlikely to affect Fitch's MHB ratings in the short run. Some portion of the personnel may not live on these bases and it is reported that some declines will be achieved through attrition and reduced recruiting. The transactions also limit the risks as privatized military housing projects were sized to meet only one-third of the potential demand for on base housing. And, some transactions benefit from an end-state number of units that already reduced housing stock at those bases.

However, we expect cuts to continue into the longer term. Their magnitude could compound over time and put some military housing bonds under pressure. In March the US Department of Defense (DoD) requested another round of Base Realignment and Closure (BRAC). More than 350 installations have been closed in previous BRAC rounds, beginning in 1988. The DoD reports that the number of soldiers has declined since the early 1990s and it expects declines to continue in the future.

Beyond US Army personnel cuts, Basic Allowance for Housing (BAH) rate increases for all military service members were also cut by 1% from 2014 to 2015. The financial health of a military housing project is tied to the receipt of the BAH, which is the main revenue component for the repayment of MHBs once construction has been completed.

The impact of any type of reduction will vary across bond issuance as the changes will likely be concentrated at some bases more than others and as the Army plan evolves. However, bases that support Special Operations or other expert functions may be maintained or even receive additional personnel as the proposed changes may strengthen certain programs.

To date, Fitch has assigned approximately 27 public ratings (through various tranches) totalling $3.5 billion in outstanding military housing bonds (MHB) through 13 transactions.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150715006420/en/

Fitch Ratings
Maura McGuigan, +1 212 908-0591
Senior Director
U.S. Public Finance
33 Whitehall Street
New York, NY
or
Rob Rowan, +1-212-908-9159
Senior Director
Fitch Wire
or
Sandro Scenga, +1-212-908-0278
Media Relations, New York
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Chainlink Price Prediction Grinds at $9 While Pepeto’s Burn Engine Races Toward a Listing
• KOS Markets Introduces Swap-Free Islamic Account Options for Eligible International Clients
• The Next Pepe Coin Is Already Live and Its Listing Will End the Presale Entry Forever