Cleveland Economic Development Fund: Bond Rating Service Raises Warning Flag

CLEVELAND (TDB) -- A soured $5.72 million economic development loan to financially troubled Myers University has prompted Fitch Ratings to issue a negative rating outlook on Cleveland-Cuyahoga County Port Authority bonds. Fitch said the possibility of a loan default involves 6.6% of an $84.1 million bond portfolio, and suggests that future efforts to promote growth in Northeast Ohio could be impacted. It also saw "economic pressures throughout the region that could negatively affect other pool borrowers." That statement amounts to a warning more bad news may be ahead. The complete text of the Fitch revision is here.

It is no secret the Cleveland area's economy is shaky -- along with much of Ohio. But the Chicago bond rating firm makes it clear that Myers problems could spill over to limit access to loans for small and mid-sized companies. Those are the kind of entities Ohio economic development officials are desperate to aid, preserve and grow if the state hopes to add and create jobs. Here's Fitch:

"Fitch's analysis reveals that the bond funds reserves would remain adequate to maintain at 'BBB+' rating regardless of any permanent losses that may be incurred by a Myers default. However, such losses would reduce the program's ability to issue additional bonds absent an increase in the fund's capital.

"The (port) authority established the bond fund in 1997 to promote economic development efforts in the region. The loan pool consists of 22 loans totaling $84.1million, with approximately 78% of loans to entities exhibiting speculative-grade credit characteristics. Combined dedicated and program reserves total approximately $23 million or 28% of total outstanding loan principal.

"The bond fund promotes economic development by loaning revenue bond proceeds to small and medium-sized industrial, commercial, nonprofit enterprises and local governments primarily in Cuyahoga County. By entering into cooperative agreements with governmental entities, the authority can also make loans for the bond fund in various counties throughout the state."

George Nemeth's Brewed Fresh Daily also has a link to the Fitch outlook revision.