Fitch Rates Toledo-Lucas County Port Authority, Ohio $12.2MM Bond Fund Revs 'BBB+'.

CHICAGO -- Fitch Ratings assigns 'BBB+' ratings to the Toledo-Lucas County Port Authority, OH (the authority) Northwest Ohio Bond Fund (the bond fund), $5,200,000 million taxable development revenue bonds, series 2006A (Cavaliers Practice Facility LLC Project) and $7,000,000 tax-exempt development revenue bonds, series 2006B (City of Perrysburg, Ohio - Preston Place at Levis Commons Special Assessment Project). Robert W. Baird & Co. Inc. will offer the series 2006A and 2006B bonds during the weeks of Nov. 13 and Nov. 6, respectively. In addition, Fitch affirms the 'BBB+' rating on the bond fund's outstanding $80.7 million outstanding bond fund development revenue bonds. All of the ratings are on Rating Watch Negative, reflecting the Chapter 11 bankruptcy filings by two of the pool's participants, Dana Corp. and Engineered Plastic Products Inc (EPP), in March 2006.

Dana Corp., which makes up 7.2% of the bond fund's portfolio ($6.7 million), filed for bankruptcy under Chapter 11 on March 3. The bond fund's bonds issued on behalf of Dana Corp. are secured by lease payments that are backed by a subordinate mortgage lien and security interest on Dana's research and development facility and equipment, located in Lucas County. Dana Corp has remained current on its monthly lease payments to the bond fund to date. However, it is still uncertain whether Dana's obligation will continue to be considered a lease or be recharacterized as a debt by the bankruptcy court, in which case future payments may be interrupted. Even if it remains a lease, Dana may seek to renegotiate the terms or reject the lease and force the Port to foreclose on the facility.

EPP, which accounts for 2.6% of the portfolio ($2.32 million), missed its March 1 monthly lease payment to the bond fund, and on March 8, filed under Chapter 11. On June 26, 2006, EPP assets were liquidated and the bond trustee received liquidated proceeds totaling $1.53 million. In addition, the trustee liquidated the $350,000 primary reserve LOC. The liquidated proceeds and primary reserve LOC, combined with interest earnings and administrative fees that accumulate annually in the program transfer fund ($500,000), are expected to be sufficient to prepay outstanding bonds related to the EPP loan on or around December 15, 2006.

While the bond fund's reserves remain adequate to absorb any permanent losses that may be incurred as a result of the bankruptcies, Fitch is concerned that these events could compromise the credit quality of the pool if primary or program reserves are needed to meet debt service payments during the bankruptcy process. The bond fund's other borrowers remain current. However, with approximately 28% of repayments derived from the auto industry, correlation risk remains a concern.

The authority established the bond fund in 1988 to advance economic development efforts in the region. The bond fund currently has 26 participants, with bonds outstanding totaling $92.9 million. The authority is currently the program's largest obligor and represents 11.3% of the total portfolio.

In addition to lease or loan payments by the pool participants, all of the bond fund's bonds are equally and ratably secured by funds held in reserves, which equal $28.3 million or 30% of the principal of all outstanding bonds. The bond fund's reserves comprise: primary reserves, funded by each borrower equal to approximately 10% of bond principal; program reserves, which include a $6.5 million cash contribution from the authority and a $10 million irrevocable letter of credit from Fifth Third Bank that expires Nov. 15, 2016, subject to extension; and additional reserves specific to certain series of bonds. Shortfalls in bond payments due to loan or lease defaults must be made up first from the defaulting borrowers' primary reserves, then from program reserves, and finally from any remaining primary reserves.

The 2006A bond proceeds will fund a portion of the costs to construct a 50,000 square feet (sf) basketball practice and training facility located in Independence, Ohio for the Cleveland Cavaliers NBA team. The bonds are secured by lease payments from the Cavaliers Practice Facility and a leasehold mortgage in the project. The 2006B bond proceeds will be used to finance certain public roadway and parking improvements related to a 5.8 acre mixed use development known as Preston Place at Levis Commons, in Perrysburg, Ohio. The 2006B bonds will be secured by special assessments levied by the city against the property, and a bank LOC will cover the bonds (minus primary reserves) through completion of the project. Both the 2006A and 2006B bond issues are further secured by the primary and program reserves mentioned above.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.derivativefitch.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.