CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following Oklahoma Water Resources Board's (the board) revolving fund revenue bonds:
--$85 million series 2011A (Master Trust);
--$56 million series 2011B (Master Trust).
The series 2011A and 2011B bonds are expected to price during the week of March 22. Bond proceeds will be used to finance eligible projects from the clean water state revolving fund (CWSRF) and drinking water state revolving fund (DWSRF), reimburse the board for qualifying infrastructure loans already made to local governments throughout the state, and provide a portion of the state matching funds required under federal SRF regulations.
In addition, Fitch affirms the following 'AAA' ratings:
--$367 million in outstanding revolving fund revenue bonds.
The Rating Outlook for all the bonds is Stable.
RATING RATIONALE:
-- Substantial loan pool collateralization from loan repayments, debt service reserves, and investment earnings results in significant tolerance to borrower defaults.
-- The board utilizes solid underwriting guidelines and program policies.
-- The loan pool of 164 participants is diverse, with no individual borrower accounting for more than a moderate 7% of the portfolio.
-- The program's deficiency fund and cross-collateralized structure enhance bondholder security under the master trust indenture.
KEY RATING DRIVERS:
-- Continued capitalization grant funding and available program resources sustain strong default tolerance.
-- The sustained loan repayment performance by portfolio participants and credit quality of reserve investments are important to maintaining the 'AAA' rating on the series 2011 and outstanding master trust bonds.
SECURITY:
The bonds are secured by loan repayments pledged to bondholders as well as debt service reserves and interest earnings.
CREDIT SUMMARY:
In this hybrid (cash flow/reserve fund) program structure, each series of bonds issued under the master trust agreement is secured primarily by separate portfolios of DWSRF/CWSRF) loans and separate reserve funds or excess loan repayments. However, released reserves, excess loan repayments, and investment earnings are deposited into the deficiency fund, which may be used, if necessary, to pay debt service requirements on any series of SRF bonds issued under the master trust agreement. Collateralization from amounts captured in the deficiency fund allows the bonds to perform, even if there were 85.3% of loan repayment defaults over the next four years. This exceeds what Fitch would expect to occur in an 'AAA' stress scenario, given the pool's quality and diversity.
Other strengths include a cross-collateralization feature of the separate CWSRF and DWSRF programs, which allows reserves from one program to be available for use by the other, as well as conservative underwriting standards.
In total, loan assets pledged to the bonds aggregate to approximately $697.8 million from borrowers (after the April 1 loan principal payment). Aggregate cash flow coverage ranges from 1.20 times (x)?1.76x. In addition to pledged loan assets, $111.7 million in reserves is available and invested in investment agreements provided by Transamerica Life Insurance Company (rated 'AA-' with a Stable Rating Outlook by Fitch).
The loan portfolio is diverse with the largest borrower, Bartlesville Municipal Authority, constituting approximately 7% of the outstanding loan par. The top 10 borrowers account for approximately 34% of the loan pool.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', Oct. 8, 2010;
--'State Revolving Fund and Municipal Loan Pool Rating Guidelines', April 28, 2008.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
State Revolving Fund and Municipal Loan Pool Rating Guidelines
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=384150
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