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Ohana Military Communities,LLC, Class III, HI -- Moody's affirms Ohana Military Communities, LLC (HI) Military Housing Revenue Bonds' ratings; revises outlook to stable

·14 mins read

Rating Action: Moody's affirms Ohana Military Communities, LLC (HI) Military Housing Revenue Bonds' ratings; revises outlook to stable

Global Credit Research - 27 Aug 2020

New York, August 27, 2020 -- Moody's Investors Service has affirmed the following ratings assigned to Ohana Military Communities LLC (HI) (the "project") Military Housing Revenue Bonds:

- A2 rating on Ohana Military Communities, LLC, Class I bonds

- Baa2 rating on Ohana Military Communities, LLC, Class II bonds

- Baa2 rating on Ohana Military Communities, LLC, Class III bonds

Moody's also maintains a stable outlook on Class I Bonds and revised the outlook on Class II Bonds and Class III Bonds to stable from positive.

RATINGS RATIONALE

The ratings affirmation reflect good project operations, indicated by healthy and stable debt service coverage ratios (DSCR), adequate debt service reserve funds (DSRF), and availability of sizeable cash reserves that are mainly set aside for rebuild and renovations that will improve the housing stock's marketability. Additionally, the affirmation incorporates the legal structure, including the priority of payment to bondholders.

Further, the Project's credit profile benefits from the very high essentiality of the bases it serves, the strength of the local real-estate market, and the experience and expertise of the management team. While we anticipate the Project to produce comparable DSCRs in 2020, its operating performance, absent meaningful increase in 2021 Basic Allowance for Housing (the "BAH"), is likely to moderately weaken in 2021 due to potential increase in expenses.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The coronavirus crisis is not a key driver for this rating action. We do not see any material immediate credit risks for the project. However, the situation surrounding the coronavirus is rapidly evolving and the longer term impact will depend on both the severity and duration of the crisis. If our view of the credit quality of project changes, we will update the rating and/or outlook at that time.

RATING OUTLOOK

The overall outlook is stable based on our expectation that strong demand for the housing units and management track record of cost containment will keep performance in line similarly rated peers. Additionally, the Class II Bonds and Class III Bonds outlook revision to stable from positive reflects limited near-term upside in financial performance given the decline in the 2020 BAH, the spike in utilities cost, and potential increase in routine maintenance which has been put on hold due to the pandemic.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Sustained increases in debt service coverage levels combined with continued solid occupancy.

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- A significant decline in debt service coverage levels and/or a significant downgrade of key counterparties.

- While not expected in the near term, significant personnel reduction, declining base essentiality or complete closure of the bases could weigh on the project's operations and financial performance.

LEGAL SECURITY

The Bonds are limited obligations of Ohana Military Communities LLC (the "issuer"), payable solely from the assets and revenues pledged under the bonds legal documents, including revenues generated by the operation of the residential rental housing units, and a first mortgage lien on the issuer's leasehold interest in the Project land and a first mortgage lien on the Project improvements. The main source of revenue for the Project is the BAH. The BAH, the amount of which is based on local rental rates and pay-grade, is a cash allowance that is part of the compensation of the U.S. military personnel.

Additionally, each class of bonds is secured by a debt service reserve fund in an amount equal to maximum annual debt service on the respective class of bonds, largely funded by bond sureties. Further, amounts on deposit in the PRA are available to pay debt service on the bonds, if necessary. The PRA relating to the 2004 Series A Bonds is directly pledged to bondholders and is subject to a minimum balance of $10 million. The PRA relating to other bond series, while not directly pledged, but may be used to pay debt service with the approval of the DoN, if other funds are not available.

PROFILE

The borrower, Ohana Military Communities LLC, was organized on May 1, 2004 by and between Hawaii Military Communities, LLC, as the managing member, and the US Department of the Navy ("DoN"), as the non-managing member, to lease, design, finance, demolish, develop, construct, renovate, own, manage, acquire, operate, and replace certain residential rental housing communities located on federally owned land located (i) on or near the Pearl Harbor Naval Complex in Honolulu, Hawaii, (ii) at the Pacific Missile Range Facility located on the island of Kauai, (iii) at the Marine Corps Base Hawaii, Kaneohe Bay, and (iv) on federally owned land on or near Marine Corps Base Hawaii and Camp H.M. Smith.

METHODOLOGY

The principal methodology used in these ratings was Global Housing Projects published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1077122. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Omar Ouzidane Lead Analyst Housing Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Florence Zeman Additional Contact Housing JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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