In the wake of Hurricane Andrew, Moody's Investors Service has downgraded $69 million of tax-exempt debt sold by the village of Hoffman Estates and secured by Sears, Roebuck and Co..

The downgrade to A3 from A2 came late last month after Allstate Insurance Group, a Sears subsidiary, announced a $700 million after-tax loss due to the hurricane.

Sears agreed in 1991 to pay the Chicago suburb's principal and interest on the tax-increment revenue bonds if revenues are not sufficient to cover those costs. Hoffman Estates sold the bonds for public land acquisition and infrastructure improvements in and around a 788-acre site where Sears has built its Merchandise Group headquarters.

In 1990, the suburb had issued $112.4 million of tax-exempt senior lien tax-increment revenue bonds secured by a letter of credit from Union Bank of Switzerland. Most of the proceeds from that issue were used to repay Sears for land it purchased in the suburb for the headquarters.

Moody's said the downgraded focuses on three areas of concern: the possibility that Allstate's hurricane-related losses could be even greater; difficulties facing Sears' Merchandise Group; and future constraints on Sears' capital position.

Doug Ellsworth, Hoffman Estates' finance director, said the downgrade of the $69 million of junior lien bonds should not be a problem for the city or for bondholders. "We have all the confidence in the world that Sears will be around to honor its ancillary agreement if the incremental revenues are not there," he said.

The bonds are rated A by Standard & Poor's Corp.

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