S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Military Housing Privatizationsimpact on the rated securities. In certain situationswhere the ownership structure of a military housingproject is weak, Standard & Poor’s may be unableto rate these securities without the DoD or an effectiveoutside third-party asset manager playing a role.Base accessFor transactions that are not deemed to be moderatelyto highly essential, access to base housing willbe another factor in evaluating a privatized militaryhousing transaction to determine its feasibility as acivilian housing project. Projects on the perimetersof bases that can be physically segregated from thebase are stronger transactions than projects locatedin the interior of military bases. For projects locatedin the interior of bases, Standard & Poor’s willreview the plans for access to the base housing bycivilians in the event that higher defense conditionsrestrict access to the base to military personnel andother DoD personnel. Transactions where baseaccess is more limited may need the DoD guaranteesof debt service, higher reserves, or much highervacancy factors. In addition, transactions where thebase commander can restrict access to the projectby the owner or property manager in cases ofnational emergency will be carefully evaluated.Documentation RequirementsDocumentation that Standard & Poor’s will need to review before assigninga rating includes, but is not limited to, the following:■ Trust indenture.■ Loan or financing agreements.■ Mortgage or deed of trust.■ Ground lease, loan guaranty from DoD and other government documents.■ Investment agreements.■ DoD request of proposals.■ Base information■ Developer’s plan of finance, construction and management.■ List if participants in project.■ Offering statement.■ Construction agreements.■ Construction completion guarantees.Project cash flow projections:■ Beginning state cash flow projections assuming beginning state of units.■ Cash flow projections for each year of the development period.■ Ending state (stabilized) cash flow projections assuming completion oftargeted end state number of units.■ BRAC cash flow projections assuming the base is closed and transition to civilianhousing at the end of the period designated by DoD to complete the BRACprocess.Military Site Visits And DocumentationIn order to evaluate the debt obligations for a rating,Standard & Poor’s will make a site visit to theproject securing the debt obligations at the beginningof the rating process. Due to the complexity ofthese transactions, there are a number of issues thatStandard & Poor’s would like to address during thesite visit, including, but not limited to the essentialityof the military base that the housing serves.Before the site visit, Standard & Poor’s willreview the project request for proposals and a summaryof the base vital statistics, as well as the marketstudy so that selection of housing comparablesfor the visit can be made.Site visits should include:■ A tour of the military housing project.Standard & Poor’s will visit each military neighborhoodand rank each neighborhood and dointerior site visits of a representative sample ofunits and will take photos of each neighborhoodand a tour of off-base civilian housing comparableproperties.■ A presentation addressing civilian housing marketoff base (preferably by the author of the marketstudy) and how BAH rates and housing onbase compare to civilian housing and rents offbase.■ A command presentation of activities of the base(preferably by uniformed members of the U.S.Armed Forces) addressing base essentiality andcontrasting the base in question with other basesof similar type. A tour of the military facilities isan important part of the analysis of essentiality.■ A presentation on each military housing neighborhood,location, pay grades housed there, dateof construction and/or rehabilitation and its currentoccupancy rate.■ A presentation regarding environmental conditionsof the housing to be privatized and howenvironmental issues are being addressed.■ A presentation by developer and general contractoron their companies and previous experiencewith building large residential communities ingeneral and military housing projects in particular.■ A presentation by developer on development planfor the project including site plans, housing elevations,construction plan and phasing plans.■ A presentation by developer/investment banker onmitigation of construction risk for bondholders.■ A presentation by developer on how propertymanagement is to be handled.www.standardandpoors.com279