Fitch Affirms Hamilton County IDB, TN's Multifamily Revenue Bonds.

Business Editors

CHICAGO--(BUSINESS WIRE)--Aug. 29, 2002

The Hamilton County Industrial Development Board, TN's multifamily housing revenue bonds $1.2 million series A and $4.9 million series B are affirmed at 'A-' by Fitch Ratings. The rating actions follow Fitch's annual review of the transaction, which closed in March 1994.

As of August 2002, the series A taxable bonds have paid down to $1,170,000 from $1,865,000 at issuance in accordance with the sinking fund amortization required by the documents. The series B tax exempt bonds remain at their origination level of $4,885,000. The bonds, issued by The Industrial Development Board of the County of Hamilton ( the Board), TN are for the purpose of financing the 272 unit Waterford Place apartment complex in Chattanooga, TN. The property complies with affordable housing guidelines as set forth by the Board that require 20% of the units be set aside for tenants whose combined income is at or below 80% of the area's median income.

Occupancy at the property has remained stable at approximately 95%. Fitch's calculated debt service coverage ratio (DSCR) for year-end 2001 is 1.49 times (x), as compared to a 1.31x for year-end 2000 and a 1.53x at issuance. To calculate DSCR, Fitch used the net operating income derived from the property's audited financial statements, adjusted it by $200 per unit for capital expenditures, included the interest income of $41,513 from the debt service reserve fund and applied an average annual debt service of $534,783.

The increase in net operating income for year-end 2001 is primarily attributed to higher rents. In March 2000, the property was sold to a new, more locally based owner. Throughout 2000 and 2001 significant improvements were made to the property to bring it more in line with the local competitive market. In 2000, a new fitness center was added, signage was replaced, landscaping was updated and exterior painting was completed. Improvements continued in 2001 when approximately $400 per unit was spent on items such as appliance replacement, roof and plumbing repairs, parking lot paving and carpet replacement. As a result, the property was able to command higher rents.

Due to the single asset nature of the transaction, there is more concentration risk associated with this deal. To help offset some of this risk, numerous reserve funds were established at closing. There is a $675,000 debt service reserve fund, an $80,000 operating reserve fund, an on-going capital improvement reserve fund and escrows for taxes and insurance.

Fitch expects the performance of the deal to continue to stabilize over the next year and will monitor the deal closely.