OREANDA-NEWS. Fitch Ratings has affirmed the 'BB' rating on the $64.735 million Toledo-Lucas County Port Authority, OH (Crocker Park Public Improvement Project) special assessment revenue bonds series 2003.

The Rating Outlook is Stable.

SECURITY

The bonds are special limited obligations payable by the issuer from special assessments levied on the assessment property by the city of Westlake. A debt service reserve fund equal to maximum annual debt service (excluding the final maturity) is fully funded through a guaranteed investment contract.

KEY RATING DRIVERS

SINGLE-PAYOR RISK: Pledged special assessments are payable from a single payor on property comprising a small, highly concentrated geographic area.

PROJECT CASH FLOWS STILL WEAK: Despite high occupancy rates, the project does not generate cash flow sufficient to cover mortgage payments. After a substantial improvement from 0.57x coverage in 2011 to 0.89x in 2012, coverage has declined to 0.8x in 2013 and 0.63x in 2014.

PROJECT OBLIGATIONS CURRENT: The project generates enough revenue to cover property taxes and special assessments, although coverage of mortgage payments is insufficient.

LIEN SUPERIOR TO MORTGAGE OBLIGATION: Special assessment payments, equal to at least annual debt service through final bond maturity regardless of the assessed value of property, are on parity with property taxes and are senior to the sizable mortgage payments.

HIGH LEVERAGE: Fitch-estimated loan-to-value is a very high 1.71:1. This combined with the cash-flow shortfall underscores Fitch's concerns about the developer's continued willingness and ability to continue to make special assessment payments, although Fitch notes that coverage trends are generally positive.

RATING SENSITIVITIES

FAILURE TO PAY PROPERTY OBLIGATIONS: Failure to pay special assessments or the subordinate mortgage payments on time would cause a downgrade.

CONTINUED COVERAGE EROSION: Continued lack of sum sufficient cash-flow coverage of mortgage payments could put further downward pressure on the rating.

MORTGAGE WITH SPECIAL SERVICER: Placement of the mortgage with a special servicer would indicate severe stress, but could, ultimately, be a stabilizing factor at a lower rating level.

LACK OF SUFFICIENT OR TIMELY INFORMATION: The inability to receive information pertinent to the rating of these obligations by Fitch on a timely basis could result in a change or withdrawal of the rating.

CREDIT PROFILE

SINGLE PAYOR RISK

The bonds are secured by special assessments payable by a single payor, Crocker Park, LLC (the developer/owner), an affiliate of Robert L. Stark Enterprises. The special assessment property is within an established retail area, Crocker Park, in affluent Westlake, Ohio (rated 'AAA' by Fitch). The area has complementary retailers, office and residential units and retains a competitive position in the region. The assessment property is composed of the retail portion of Crocker Park with over 630,000 square feet of retail space anchored by several major retailers, in addition to office space and residential properties.

MATURE PROJECT WITH HIGH OCCUPANCY RATES

All phases of the development anticipated at the time of the bond financing have been completed. Occupancy rates recently have been quite strong, ranging from 92% to 100%. Development continues in areas adjacent to the assessment property. Construction of a new headquarters for American Greetings scheduled to open in 2016 is expected to result in the addition of 1,500 jobs and should further strengthen consumer demand at the mall.

The development generates cash flow insufficient to support large mortgage payments, after payment of special assessments, despite the high occupancy rates. Mortgage coverage improved to 0.89x in 2012 and 0.8x in 2013 after sinking to 0.57x in 2011 from 0.75x in 2010; it declined back to 0.63x in 2014. However, the developer is current on mortgage payments.

LIEN SUPERIOR TO MORTGAGE OBLIGATION

The special assessments are on parity with real estate taxes and are senior to an outstanding mortgage on the property. Special assessments were authorized in aggregate maximum annual installments of $6 million for the term of the bonds and are levied annually in an amount sufficient to pay annual debt service. Fitch remains concerned about the current or any future owner's incentive to continue to make special assessment payments, given the high overall loan-to-value ratio of 1.71:1, using Fitch's conservative stressed value of the entire development.

STRUCTURAL PROTECTIONS

Fitch derives some comfort from the superiority of the lien to those of larger obligations; however, the weak coverage of the mortgage obligation introduces risk of payment disruption should the loan go into foreclosure. Fitch believes the presence of a master servicer (and the addition of a special servicer, if necessary), as part of the mortgage trust securitization may prove to be a stabilizing factor, should the trust have sufficient resources and choose to provide liquidity to bridge any payment interruption during a work-out. The 'BB' rating does not assume any such external support from the trust.