Fitch Rates Toledo Pt Auth OH $3MM Bond Fund Debt `BBB+'
29 November 2000
Fitch Rates Toledo Pt Auth OH $3MM Bond Fund Debt `BBB+'
NEW YORK--Nov. 29, 2000--Fitch assigns its `BBB+' rating to the Toledo-Lucas County Port Authority, OH's $2,500,000 development revenue bonds (Northwest Ohio Bond Fund) series 2000F (Alex Products, Inc. Project), and affirms its `BBB+' rating on the authority's $58,055,000 outstanding Northwest Ohio Bond Fund development revenue bonds.The series 2000F bonds will be offered on a limited basis via negotiation through McDonald Investments Inc. Under an exemption from the requirements of Rule 15c2-12, they will be issued only in denominations of $100,000 or more.
The `BBB+' rating reflects the bond fund's substantial reserves and other forms of security, which supplement a pool of loan repayments primarily 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 more than a 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 reserves 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. With approximately 60% of repayments derived from the historically cyclical auto industry, correlation risk remains an ongoing concern.
The Port Authority established the fund in 1988 to advance economic development efforts in the region. After this issue, the bond fund loan pool includes 18 borrowers, with about 60% of loans to companies exhibiting speculative-grade credit characteristics. All loans are current. Owens Corning, which filed Chapter 11 bankruptcy on Oct. 5, represents less than 8% of the loan portfolio. Although the reorganization under bankruptcy could potentially affect the company's lease payments to the authority, this is deemed unlikely since the building originally financed by the loan is the company's world headquarters. At any rate, substantial loan reserves and program reserves are available to offset potential short-term interruption in the company's lease payments. The authority reports that Owens Corning is current with its lease payments since the bankruptcy filing.
Series 2000F 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) 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, expected to be more than $1.6 million annually by fiscal 2002 compared to approximately $60 million in projected sales that year, but Alex Products' history of sales growth and quality awards for its JCI contracting provide some comfort. This bond issue is the second issued by the authority on behalf of Alex Products. The authority sold $4.7 million revenue bonds in 1999 for the benefit of the company that funded the acquisition of equipment. After this issue, Alex Products' outstanding obligations will represent approximately 6% of the total bond fund portfolio. The reserve requirement for the series 2000F bonds, equal to 10% of principal, will be funded by a letter of credit. In addition, one of the company's owners has pledged his personal guarantee and assigned a $1 million life insurance policy as additional bond security.
Total reserves are comprised of primary reserves, funded by each borrower equal to approximately 10% of bond principal; program reserves, partially cash funded by the authority and additionally secured by a letter of credit (LOC); and additional reserves specific to certain series of bonds. Following this transaction, primary and program reserves will total 33% of outstanding loans. The authority's total reserves, including reserves specific to individual bond series, could withstand defaults by more than 40% of loans, excluding liquidation proceeds from defaulting loans that would likely offset total losses. These substantial reserve amounts are necessary since 60% of outstanding loan principal is perceived to be of below investment grade quality. Program reserves include a $6.5 million LOC from The Fifth Third Bank of Northwestern Ohio, N.A. (rated `AA-/F1+' by Fitch) that expires no earlier than 2008, although the reserve LOC automatically extends two years biennially beginning in August 2000 except when the bank gives 30 days notice of its intent to cancel the LOC.