Fitch Rates Syracuse Industrial Development Agency, New York $329MM PILOT Bonds 'AA-'.

NEW YORK -- Fitch Ratings assigns an 'AA-' rating to the City of Syracuse Industrial Development Agency's (SIDA) approximately $226.9 million payment-in-lieu-of-taxes (PILOT) revenue bonds, series 2007A (Carousel Center Project) and approximately $95.7 million PILOT revenue bonds, taxable series 2007B (Carousel Center Project). The bonds are scheduled to sell on Feb. 15 via negotiation with Lehman Brothers and Citigroup. Bond proceeds will be used in part to fund an expansion of the Carousel Center, located in Syracuse, NY. The bonds will be insured at closing by XL Capital Assurance, rated 'AAA' by Fitch. The Rating Outlook is Stable.

The 'AA-' rating is based on the strong operating performance and competitive position of the Carousel Center, a tight legal structure providing adequate bond holder protections with PILOT senior to all other payment obligations of Carousel Center Company LP (the Carousel Owner). PILOT revenues are protected from declines in property assessments and are not dependent upon future site expansion. The rating also recognizes the risks of a concentrated revenue stream from one property owner securing debt service payments. The shopping center is located in Syracuse, NY, and while it benefits from a strong competitive position, the economic base supporting its operations is below average.

The bonds are secured by a PILOT payable to SIDA by the Carousel Owner, pursuant to a PILOT Agreement. A PILOT note payable to SIDA in a principal amount equal to the scheduled PILOT in each year through the life of the bonds evidences the obligation of the Carousel Owner. In addition, each PILOT note is secured by a PILOT mortgage, granted by the Carousel Owner and SIDA, encumbering their interests in the existing Carousel Center to the bond trustee. The PILOT mortgages impose a lien similar to liens imposed by taxing authorities, and provide for similar remedies, i.e., foreclosure of property and tax lien sale. The CMBS lender mortgage on the existing Carousel Center is subordinate to the PILOT mortgages.

Annual debt service payments on the series 2007A and B bonds will be set so that the amount of the annual PILOT, together with interest earnings on the series A reserve fund, will provide 1 times (x) debt service coverage. The obligation of the Carousel Owner to pay the PILOT is on par only with governmental charges and fees, all of which are senior to any other payment obligations, including debt service to any other lenders, operations and maintenance and any distributions to the Carousel Owner. The issuance of parity bonds requires an increase in the PILOT equal to the additional debt service. It is envisioned that bonds issued to fund future expansions will be separately secured by PILOTs on other portions of the Carousel Center, which will constitute separate tax parcels, and will not be owned by the Carousel Owner.

Two of the mall's anchor tenants are currently delinquent in their PILOT payments, pending the outcome of legal proceedings initiated by the tenants in November 2006, challenging the legality of their obligation to pay a portion of the PILOT on the Carousel Center. These tenants are the only two in the mall that have entered into reciprocal easement agreements (REAs) with the Carousel Owner, which gives them a unique basis to challenge the PILOT. The other tenants are not parties to REAs and it is not anticipated that any other tenants will cease to pay the portion of their rent attributable to the PILOT. Fitch believes that concern regarding this litigation is offset by the fact that the payment of the PILOT by the Carousel Owner is absolute and unconditional, notwithstanding the inability of the Carousel Owner to recover this payment from its tenants.

The existing Carousel Center is a super-regional shopping center opened in 1990; it is located in Syracuse, NY in close proximity to several major highways. The mall is currently sited on 83.5 acres, 44.4 of which are subject to the PILOT agreement. Gross leasable area (GLA) totals 1.5 million square feet, and features approximately 134 mall shops, four anchor tenants, four eat-in restaurants, a food court and a 17 screen Regal theatre. Financial results have been strong; in fiscal 2005 total sales of $421 million produced mall shop sales of $419 per square foot, the occupancy rate is 94%.

The expansion project will increase the size of the mall by approximately 850,000 square feet of GLA, to be contiguous with the existing Carousel Center. The expansion is the first phase of a larger development plan to transform the mall into a unique resort known as DestiNY USA. The 2007 bonds are the first debt issuance by SIDA for the expansion project; it is anticipated that up to an additional $1.9 billion may be issued for subsequently expansions, with future bonds to be secured by PILOTs on the expansion parcels. The PILOTs securing the 2007 bonds are not dependent upon the successful completion of the expansion project.

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