AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following bonds issued by the New York State Environmental Facilities Corporation (EFC) under its 2010 master financing indenture (MFI):
--Approximately $156 million state revolving fund (SRF) revenue bonds, series 2013B.
Bond proceeds will be used to finance clean water and drinking water projects and to refund portions of certain series of bonds that were originally issued under the 1991 MFI. Bonds are expected to sell via negotiation the week of July 8.
In addition, Fitch affirms the following rating:
--Approximately $624 million outstanding 2010 MFI SRF revenue bonds at 'AAA'.
The Rating Outlook on all bonds is Stable.
SECURITY
The 2010 MFI revenue bonds are secured by pledged borrower loan repayments and excess available de-allocated reserve account release payments from the 1991 MFI senior and subordinate lien bonds (rated 'AAA' with a Stable Outlook by Fitch) and EFC's New York City Municipal Water Finance Authority (NYCMWFA) program bonds (senior and subordinate bonds rated 'AAA' and 'AA+', respectively, with a Stable Outlook).
The 2010 MFI bonds are further secured by a parity commitment to use any available amounts in the clean water and drinking water SRF equity funds to meet shortfalls.
KEY RATING DRIVERS
SOLID FINANCIAL STRUCTURE: Fitch's cash flow modeling demonstrates that the program's credit enhancement is in excess of Fitch's 'AAA' liability default hurdle, as produced using Fitch's Portfolio Stress Calculator (PSC).
HIGH-QUALITY BORROWER POOL: Approximately 92% of the loan portfolio is calculated to be investment grade. Loan provisions are also strong as all are secured by the obligors' general obligation (GO) or net system revenue pledges.
MODERATE POOL DIVERSITY: The top 10 program borrowers represent 49% of the total loan pool. Fitch views the 2010 MFI program as moderately concentrated in comparison to other SRF programs.
RELATIVELY WEAK LEGAL COVENANTS: Certain legal covenants are weaker than in some other SRF programs, including the 1.15x additional bonds test. Additionally, no debt service reserve has been funded for the 2010 MFI. However, Fitch expects the EFC to maintain high coverage levels and loan quality given historical performance and management policies.
RATING SENSITIVITIES
REDUCTION OF STRUCTURAL ENHANCEMENT: Significant deterioration in loan repayment performance and/or a measurable reduction in annual bond debt service coverage could put downward pressure on the rating. The Stable Outlook reflects Fitch's view that such deterioration is unlikely to occur.
CREDIT PROFILE
The 2010 MFI is an open indenture with bonds issued under separate supplemental series indentures. The program bonds are structured using a traditional cash flow model. The bonds are secured by borrower loan repayments, de-allocated reserve amounts and available equity. Bond proceeds are typically used to fund loans to local governments and other public entities throughout the state for water pollution control and drinking water projects.
PLEDGED RESOURCES WITHSTAND FITCH'S 'AAA' RATING STRESS
Annual debt service (ADS) coverage provided by pledged loan repayments funded from bond proceeds and program equity exceeds 1.5x annually. Fitch's cash flow modeling demonstrates that program enhancement can sustain hypothetical loan defaults of 91%, 100%, and 100% over the first, middle, and last four years of the bonds' life, respectively, and still pay bond debt service in full (per Fitch criteria, a 90% recovery is also applied in its cash flow model when determining default tolerance). This is in excess of Fitch's 'AAA' liability default hurdle of 33%, as produced by the PSC, which is derived based on the overall pool credit quality as measured by the rating of underlying borrowers, size, loan term, and concentration.
RELEASES FROM OTHER EFC PROGRAMS BENEFIT BONDS
In addition to overcollateralization (OC), or coverage provided by loan repayments in excess of debt service due, the 2010 MFI bonds are supported by reserve deallocations from the 1991 MFI senior and subordinate lien bonds (rated 'AAA' with a Stable Outlook by Fitch) and EFC's New York City Municipal Water Finance Authority (NYCMWFA) program bonds (senior and subordinate bonds rated 'AAA' and 'AA+', respectively, with a Stable Outlook by Fitch).
While Fitch recognizes this as added credit strength, the 2010 MFI's OC provided enough coverage alone to pass Fitch's 'AAA' stress scenario. In addition, the releases from the 1991 MFI will be depleted by fiscal year 2037, the last year in which bonds issued under the 1991 MFI mature. Further, NYCMWFA's releases will be eliminated by fiscal 2037 if no additional bonds are issued under the senior lien, which requires the funding of pledged reserves.
FAVORABLE UNDERLYING BORROWER CREDIT QUALITY
The 2010 MFI pool's loan credit quality is strong. Fitch estimates that at least 92% of all loan principal is of investment-grade quality, including 54% rated at or above 'AA-'. Underlying loan security is solid, with approximately 85% of loan repayments secured by each entity's GO pledge and the remaining 15% secured by utility net revenues.
MODERATE BORROWER CONCENTRATION
The pledged loan portfolio, which consists of just over 250 borrowers, exhibits moderate concentration risk as the top 10 borrowers represent approximately 49% of the total loan pool. The largest borrower - Westchester County (GO bonds rated 'AAA') - represents 18% of the total portfolio, while the remaining borrowers account for less than 6% each of the aggregate pool.
BELOW-AVERAGE LEGAL STRUCTURE
The program's legal structure contains certain covenants that are relatively weaker than some other similarly rated SRF programs. No debt service reserve will be funded for the series 2013B bonds (or outstanding bonds). Further, the additional release test, established under the supplemental indentures, requires 1.15x coverage on senior and subordinate lien debt. Despite the legal structure, Fitch believes program management will continue to keep coverage at levels that insure the program's high credit quality given historical performance and management policies.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 3, 2013);
--'State Revolving Fund and Leveraged Municipal Loan Pool Criteria' (May 17, 2013);
--'Rating Guidelines for State Credit Enhancement Programs' (Apr 18, 2013);
--'Counterparty Criteria for Structured Finance Transactions' (May 13, 2013).
Applicable Criteria and Related Research:
Feedback Analysis: Counterparty Criteria for Structured Finance Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678943
Rating Guidelines for State Credit Enhancement Programs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=704880
State Revolving Fund and Leveraged Municipal Loan Pool Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707257
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=795072
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