Toledo-Lucas Cnty Pt Auth OH Bnd Fnd Rtd BBB+ by Fitch IBCA
20 October 1999
Toledo-Lucas Cnty Pt Auth OH Bnd Fnd Rtd BBB+ by Fitch IBCA
NEW YORK--Oct. 20, 1999--Fitch IBCA assigns its 'BBB+' rating to the Toledo-Lucas County Port Authority, OH's $4,670,000 Northwest Ohio Bond Fund development revenue bonds, series 1999B (Alex Products Inc. Project), and affirms its 'BBB+' rating on the authority's $47,990,000 outstanding bond fund revenue debt.The series 1999B bonds, scheduled to mature through 2009, are expected to sell on or about Oct. 26 through McDonald Investments Inc.
The 'BBB+' rating reflects the bond fund's substantial reserves and other forms of overcollateralization, which supplement a pool of loan repayments from small- and medium-sized industrial and commercial enterprises in the Toledo area. The rating recognizes the bond fund's very strong borrower repayment record during its first decade of operation, as well as the fiscal and economic health of both the port authority and the Toledo area.
Management monitors its borrowers and maintains financial flexibility through the program's reserve structure to cope with potential loan repayment delinquencies if collateral assets must be liquidated or loans restructured. Program management practices, underwriting standards, and credit prospects are expected to remain stable.
The port authority established the bond fund in 1988 to advance its economic development efforts in northwest Ohio. Currently, the bond fund loan pool includes 17 borrowers, with about two-thirds of outstanding loans related to small- and medium-sized companies in the Toledo area exhibiting speculative-grade credit characteristics. All loans are current.
However, the holding company paying a small loan (3% of the pool) continues, as it has for the past year, to seek a buyer for its company that used series 1990E bond fund financing. Bond fund officials continue to be actively involved in this process. Sizable reserve funds and additional collateral in the form of real estate, equipment or other assets provide security in the event of loan defaults.
Series 1999B proceeds will finance acquisition of equipment by Alex Products Inc., an automotive part company in Henry County. Alex Products is a second-tier automotive supplier specializing in production of seat frame assemblies, sun visor arms, shift levers and other seat parts.
Contracts with Johnson Controls Inc. (JCI, rated `A' by Fitch IBCA) comprise a substantial portion of its business, primarily for parts production related to a single product line of a major automaker. Expansion will add to the company's debt load, more than $800,000 annually compared to $22 million in projected 1999 sales, but Alex Products' history of sales growth and quality awards for its JCI contracting provide some comfort.
The rating primarily reflects the benefit of the bond fund's reserves in severe stress scenarios, as nearly all corporate borrowers in the program are below investment-grade quality. Stress tests conducted by bond fund advisors have shown that the fund could withstand more than 30% loan defaults, utilizing conservative assumptions regarding foreclosure and liquidation proceeds from defaulting loans.
Borrowers must fund primary reserves at approximately 10% of bond principal. In addition, a program reserve fund provide an additional layer of protection for all bondholders. Primary and program reserves will total $20.3 million after the series 1999B transaction, or 39% of outstanding bonds, reflecting addition of state grant funds to the structure earlier this year.
These reserves include a $6.5 million letter of credit (LOC) from The Fifth Third Bank of Northwestern Ohio, N.A. that expires no earlier than Aug. 1, 2008, subject to two-year extensions. The reserve LOC provides the fund with a revolving line of credit to be used after a borrower's primary and other program reserves have been depleted.
Additional security, primarily in the form of reserve LOCs, has been added to the security structure for some borrowers, including the previously mentioned borrower whose property may change ownership. Total cash and LOC reserves securing some or all bond fund issues now total 47% of outstanding bonds, or 62% of bonds secured by speculative-grade loans. These figures do not consider real property, equipment, and other mortgaged collateral.