Moody's Investors Service reinstated an Aa rating late Friday to outstanding Connecticut Housing Authority multifamily mortgage revenue bonds.
The rating agency acted after the U.S Department of Housing and Urban Development and the Connecticut National Bank resolved a disagreement over a missed payment to bondholders.
Peter Tommaney, vice president and manager of public finance at Moody's, said the rating affects $933,750 of 1985 Series B and $20.3 million of 1985 Series A bonds Mr. Tommaney said the 1986 Series A bonds, also issued in the deal, have already been redeemed in full and did not affect the decision.
Initially, the two issues were rated a conditional Aa by the agency, and that rating was affirmed in 1991. On April 6, 1992, however, the issue was withdrawn and suspended from rating consideration because of a dispute between the trustee and insurer.
The 1985 Series B bonds were sold by the authority for use in a now-defaulted development project. The Charter Oak Square Limited Partnership, which used proceeds of the 1985 bond sale to finance a 214-apartment complex in Hartford, defaulted on debt payments in 1990.
Since the bonds were insured by the Federal Housing Administration, HUD was responsible for payment of the bonds.
According to Mr. Tommaney and Rinette Elovecky, vice president of corporate trust at Connecticut National Bank, HUD's argument against paying for the bonds was a technical one.
Arthur Greenblatt, a managing director at Community Development Corporation, mortgage servicer of the Charter Oaks program, described the problem.
"When the issue was turned over to HUD, $180,000, or two months debt service, was omitted from the official claim," Mr. Greenblatt said.
"After a meeting between the trustee, Connecticut National Bank, and HUD, the error was seen and HUD paid the remainder of the money due to bondholders," Mr. Greenblatt added. "It was really just a missed allocation of funds."
Mr. Tommaney said, "The problem was that HUD thought that the trustee should have submitted the bonds to them three months earlier than they did. According to regulations, if any provision of the arrangement is not abided by, then the trustee is at fault and it is their responsibility."
Mr. Tommaney said that after conversations between HUD and Connecticut National Bank, the dispute was resolved and full payment will be made to all Series B bondholders when the bonds are redeemed on July 27.
Henry S. Scherer, Connecticut's commissioner of housing, said the misunderstanding between the two entities was a unique one.
"The Connecticut Housing Authority was a passive conduit for bonds that did its issuance via private placements," Mr. Scherer said. "Since the bonds were insured, I think investors were surprised that there was a potential for nonpayment."
Mr. Scherer said that following meetings between the bank and HUD, the matter was resolved and the money is now available to fully repay investors.
According to Moody's, the Series A bonds are secured mainly by assets derived by a Government National Mortgage Association mortgage-backed certificate and investment held in various funds under the indenture.
Commissioner Scherer said the Connecticut Housing Authority no longer issues debt because of the efforts of the Connecticut Housing Finance Authority, a separate organization. "Unlike larger states," he added, "there is no reason for a state the size of Connecticut to have two competing housing authorities."
Pam Berkowitz, vice president and housing specialist at Standard & Poor's Corp., said the rating agency has not yet decided on changing the rating of the bonds but is looking into it.