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ATLANTA-Moving money from the debt service reserve fund to pay monthly principal and interest on a $7 million multifamily bond issue has caused the Atlanta Urban Residential Finance Authority to have its bond rating downgraded to CCC from B. The bonds are issued on the Cascade Pines affordable housing project.

Standard & Poor’s Ratings Services says in a prepared statement it lowered the rating after a trustee for the bond issue told S&P the funds were used “to compensate for deficiencies in revenues” to pay the Sept. 1 debt service installment on the series 1995 bonds. About $180,000 was drawn from the reserve fund.

About $412,000 is still available in the debt service reserve fund. “It is unclear at this time if further funds will be necessary to compensate for deficiencies in project income for the next principal and interest payment,” according to the S&P statement. “The outlook is negative.”

The transaction was originally underwritten to perform a 1.41 x debt-service coverage. The issue has performed “below underwritten levels over the past four fiscal years, and according to the issuer, continues to underperform year to date,” according to the S&P statement.

Unaudited year-end 2002 financial statements from the issuer to S&P “indicate that the debt service coverage was .53 x maximum annual debt service,” S&P says. Year-to-date unaudited August 2003 financial statements “indicate that the issue continues to perform well below 1 x maximum annual debt service.”

The S&P report was completed by the agency’s New York analysts, Tabare Borbon and Ryan Fitzpatrick.

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