OREANDA-NEWS. Fitch Ratings has affirmed the ratings on the following classes of Hampton Roads PPV, LLC military housing taxable revenue bonds (Hampton Roads Unaccompanied Housing Project), 2007 series A (the bonds):

--Approximately \$210 million class I at 'A-';
--Approximately \$58 million class II at 'BB';
--Approximately \$9 million class III at 'B+'.

The Rating Outlook on the bonds is Negative.

SECURITY

The bonds are special limited obligations of the issuer and are primarily secured by a first lien on all receipts from the operation of the unaccompanied housing project known as Hampton Roads, located at Norfolk Naval Complex. The absence of a cash-funded debt service reserve fund limits protections afforded bondholders.

KEY RATING DRIVERS

SUFFICIENT DEBT SERVICE COVERAGE: The affirmation of the ratings reflects the 2014 debt service coverage ratios (DSCRs) of 1.41x, 1.09x, and 1.05x, respectively. While 2014 DSCRs are higher than what was initially projected by Fitch in early 2014 based on annualized data, they are lower than 2013 DSCRs of 1.47x, 1.14x, and 1.07x.

VOLATILE BAH: Basic Allowance for Housing (BAH) rates increased 8.91% in 2015 which should provide the project with higher revenues this year. This followed a 5.77% decrease in 2014, a 5.25% increase in 2013, and a 1.36% decrease in 2012. The Negative Outlook primarily reflects the volatility in BAH rates and DSCRs in recent years.

HIGH TURNOVER LEVELS: The project continues to experience high turnover levels as a result of deployments which puts negative pressure on operating expenses and occupancy rates.

OCCUPANCY DIP: The project's occupancy dipped to 92.1% in February 2015 due to a deployment of a carrier battle group. The average occupancy for 2014 was 96%.

ABSENCE OF CASH RESERVE: The absence of a cash-funded debt service reserve fund detracts from bondholder security for all classes of bonds; however, the Class III bonds are most vulnerable to this.

RATING SENSITIVITIES

BAH DECREASE: Future annual declines in BAH rates for the Norfolk area could impact DSC and put negative pressure on the ratings.

DECREASED OCCUPANCY AND/OR INCREASED EXPENSES: Management's inability to maintain high occupancy levels and control operating expenses could put negative pressure on the ratings.

UNPLANNED DEPLOYMENTS: Deployments that may occur outside of the planned schedule may put negative pressure on net operating income and DSCRs due to high turnover beyond what is normally expected.

CREDIT PROFILE

BASE INFORMATION

Hampton Roads/Norfolk Naval Complex (HRNC), located in southeastern Virginia about 90 miles from Richmond and 185 miles from Washington, D.C., is the largest naval base in the world. It covers approximately 4,631 acres. HRNC consists of a number of installations primarily located in the Norfolk and Sewells Point areas and extends to sites in Norfolk, Virginia Beach, Suffolk, Chesapeake, Portsmouth, Hampton, and Newport News. HRNC is surrounded by many navy installations such as Naval Weapons Station Yorktown/Cheatham Annex, Little Creek Naval Amphibious Base, Norfolk Naval Shipyard, Naval Air Station Oceana/Dam Neck Annex, and Naval Security Group Activity Northwest.

PROJECT OVERVIEW

The housing project located on Norfolk Naval Complex base in Virginia (known as Hampton Roads) provides apartment residences for single (i.e. unaccompanied) U.S. Navy enlisted personnel. Hampton Roads provide 1,189 two-bedroom, two-bath apartments, each with a kitchen and living room. In addition to the new units, existing housing facilities were renovated to provide another 39 units.

DEBT SERVICE COVERAGE

The project finished 2014 with DSCRs of 1.41x, 1.09x, and 1.05x, respectively. While 2014 DSCRs are higher than initially projected in early 2014, they are lower than 2013 DSCRs of 1.47x, 1.14x, and 1.07x. Based on annualized numbers from January and February 2015 data, the project is projected to finish 2015 with DSCRs of 1.57x, 1.21x, and 1.16x, respectively, if all factors remain equal. These higher ratios are primarily driven by the increased BAH rates for 2015.

Fitch views unaccompanied military housing projects as having more risk than military family housing projects given the varied profile of the respective tenant bases. Unaccompanied housing projects tend to be subject to higher levels of physical wear and higher annual turnover which leads to higher operating expenses. Therefore, Fitch expects that the DSCRs for an unaccompanied project will be higher than those of military family housing transactions at the same rating level.

PROJECT OCCUPANCY LEVELS

The project experienced a dip in occupancy during February 2015 due to the deployment of a carrier battle group. The average occupancy in 2014, which also experienced a dip in occupancy due to a deployment in early 2014, was 96%. Management reports that occupancy has improved to 95.4%. Fitch believes that project management will continue to be challenged by the potential for future deployments and the need to reoccupy units.

BAH RATES

BAH rates increased 8.91% in 2015. This followed a 5.8% decrease in 2014, a 5.25% increase in 2013, and a 1.36% decrease in 2012. The volatility in BAH rates in recent years, and its corresponding effect on DSCRs, is the primary reason for the Negative Outlook. BAH rates for 2015 are 19% greater than BAH rates at bond issuance (2007), which is greater than the original pro forma 10% increase assumption.

BRAC RISK

The first Base Realignment and Closure Commission (BRAC) recommendations were made in 1988, and U.S. Navy facilities in and around Hampton Roads were not included in any of the commission's recommendations. However, since the second BRAC review in 1991 and recommendations made in 1993, 1995, and 2005, the BRAC Commission has proposed to relocate Navy activities, ships, personnel, operations, and infrastructure to HRNC.

It is clear from a review of the Navy's recommendations to the BRAC Commission and the BRAC Commission's recommendations to the President since 1988 that the HRNC, including the Naval Shipyard, Norfolk, Naval Station, Norfolk, Naval Air Station, Oceana, Naval Amphibious Base, Little Creek, Naval Weapons Station, Yorktown, and the related operations and infrastructure in around them are vital to the U.S. Navy. None of these key facilities have been recommended for closure by the Navy. Consequently, Fitch expects that HRNC will continue to serve the U.S. Navy and retain its status as the largest naval complex in the world for the foreseeable future.

DEBT SERVICE RESERVE FUND

The bonds have a debt service reserve fund whereby AMBAC serves as the surety bond provider sized at maximum annual debt service. Fitch does not assign any value to the AMBAC surety bond and the ratings reflect this fact. In addition, there is an excess collateral agreement in place in the amount of \$6.5 million which acts as a line of credit to the project from Merrill Lynch (rated 'A/F1'; Outlook Negative by Fitch) with a wrap from AIG (rated 'A-'; Outlook Positive). At this time, the surety bond and excess collateral agreement providers have had their creditworthiness downgraded or withdrawn completely since the issuance of the bonds. As a result, Fitch no longer gives any credit in the analysis to those agreements.

PROJECT MANAGEMENT

Hampton Roads LLC is managed by American Campus Communities, Inc. (ACC). ACC has traditionally managed student housing properties and currently has 200 properties with approximately 130,000 student housing beds under its management. The Hampton Roads properties are the first arrangement where ACC is acting as manager for a military housing project.