NEW YORK--(BUSINESS WIRE)--Fitch Ratings rates the DASNY Buena Vida 2013A and 2013B revenue bonds supported by the State of New York Mortgage Agency (SONYMA) Mortgage Insurance Fund (MIF) 'AA-'.
The Rating Outlook is Negative.
SECURITY
The bonds are secured by the trust indenture's available assets, including funds in the debt service reserve and bond funds. The assets are combined with the MIF guarantee and are sufficient to pay the mortgage on a monthly basis in a claim scenario and provide adequate amounts to redeem the bonds in full and pay accrued interest.
KEY RATING DRIVERS
SONYMA MIF GUARANTEE: The bonds' rating and Outlook reflect the rating of the SONYMA Mortgage Insurance Fund (currently rated 'AA-'; Outlook Negative by Fitch) given that the MIF insures the project mortgage amount (for more information on the MIF rating, please see press release dated Aug. 28, 2012 available at www.fitchratings.com).
CASH FLOW SUFFICIENCY: The cash flow schedules demonstrate sufficient liquidity to pay debt service throughout the term of the bonds.
SECURITY PROVISIONS: The bonds' ratings also takes into account that each bond series has the following: trust indenture security provisions detailing the instructions for the timely filing of insurance claims; sufficient liquidity to cover missed mortgage payments; and adequate asset-parity to redeem bonds in the case of a mortgage default.
DEBT SERVICE RESERVE: The bonds debt service reserve fund is sized to cover the period of time that SONYMA will take to make a claim payment. In the event of a claim, the debt service reserve is sized to cover payments as specified by the SONYMA insurance policy.
ASSET PARITY RATIO: A review of the asset/ liability parity ratios for the transaction demonstrates sufficient overcollateralization to fully redeem bonds in the event of a mortgage default.
RATING SENSITIVITIES
SONYMA MIF UPGRADE OR DOWNGRADE: An upgrade or downgrade of the SONYMA MIF rating would cause a corresponding change to the bond rating.
DEBT SERVICE RESERVE FUND TAP: If the debt service reserve were tapped and not replenished, there could be a negative rating action on the bond rating.
FUTURE ASSET MODIFICATION: Any modifications to assets that would render available assets to be less than 101% of the bond amount could negatively impact the bond rating.
CREDIT PROFILE
Fitch views the credit risk for this transaction as that of the SONYMA MIF because the policy in place covers the mortgage amount outstanding and expects that the bond amount outstanding will be the same upon closing.
Fitch's rating analysis for single asset multifamily transactions with a mortgage guarantee involves the following: a cash flow review at the time of origination to determine sufficiency of liquidity to pay debt service throughout the term of the bonds; a structural review of the insurance provisions at the time of origination; and an asset-parity review to confirm that available assets would exceed bond liabilities in the case of a default.
Fitch's liquidity analysis includes a review of the cash flow schedules at the time of origination to ensure that the combination of mortgage payments and investment income, if applicable, is sufficient to make full and timely debt service payments throughout the term of the bonds. Transactions are typically structured with a debt service reserve fund (DSRF) that is sufficient to pay debt service if tapped due to a delinquent mortgage payment or during the claim payment process; the amount depends on the timing of the insurance provisions. In the case of the 2013 bonds, the debt service reserve fund is structured to cover a minimum of four months of debt service payments, which is adequate given the 60-day claim time. As part of the liquidity analysis, Fitch also reviews the credit quality of the debt service reserve fund providers. For more information on the minimum provider rating guidelines, please see the report, 'Counterparty Criteria for Structured Finance Transactions' dated May 13, 2013 available at www.fitchratings.com).
The structural review involves an analysis of the trust indenture security provisions at the time of origination regarding timely filing of insurance claims and the length of time to receipt of claims. There is a lag between the time a borrower fails to make a monthly mortgage payment and the time that insurance proceeds are obtained. Fitch reviews the cash flow schedules to ensure that in a mortgage default scenario, the timing follows the indenture provisions and sufficient funds are available to cover a missed mortgage payment as well as accrued interest expenses.
The asset parity review is used to determine whether, in a default scenario, each transaction has sufficient assets to cover payment on the respective bonds. The asset parity ratio is calculated by dividing the dollar amount of total program pledged assets (that includes the multifamily mortgage and amounts on deposit in program funds and reserves) by the total amount of bonds outstanding. A typical single asset multifamily issuance with a mortgage guarantee maintains an asset parity ratio of no less than 101%. The debt service reserve accounts are important components of the asset parity review given that these funds can be used to redeem bonds if mortgage proceeds are not sufficient to make full payment on the bonds.
Proceeds of the Series 2013 Bonds are to refund all of the outstanding Dormitory Authority of the State issued for Buena Vida Revenue Bonds, 1998 Series A, pay the costs of issuance and fund the Debt Service Reserve Accounts prescribed by the bond documents. At issuance the asset parity ratio is 1.04%.
Additional information is available at www.fitchratings.com'
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 03, 2013);
--'Counterparty Criteria for Structured Finance Transactions' (May 13, 2013).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499
Counterparty Criteria for Structured Finance and Covered Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793799
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