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) program:
--Approximately $213.15 million SRF revenue bonds, Series 2014B (2010 Master Financing Program) (Green Bonds) (Sr. Lien).
The bonds are scheduled to price via negotiation the week of June 2. Bond proceeds will be used to finance clean water and drinking water projects within the state and to refund or defease in full the series 2004A and 2004D bonds issued under the 1991 MFI. The series 2004B bonds will be partially refunded.
In addition, Fitch has affirmed the following ratings:
--$745 million outstanding parity bonds at 'AAA'.
The Rating Outlook is Stable.
SECURITY
The senior lien 2010 MFI revenue bonds are secured by a senior lien pledge on borrower loan repayments and, on a subordinated basis, excess available reserve account release payments from the 1991 MFI program bonds and the New York City Municipal Water Finance Authority (NYCMWFA) program bonds. 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 can continue to pay bond debt service even with loan defaults in excess of Fitch's 'AAA' liability default hurdle, as produced using Fitch's Portfolio Stress Calculator (PSC).
HIGHLY-RATED BORROWER POOL: Approximately 90% of the borrowers in the 2010 MFI pool have investment-grade ratings. Most loans are secured by borrowers' general obligation or utility revenue pledges.
MODERATE POOL DIVERSITY: The loan portfolio has average borrower concentration, with the top 10 borrowers representing approximately 53% of the loan pool. Westchester County is the largest borrower at 19.7% of the pool.
STRONG PROGRAM MANAGEMENT: EFC manages the largest SRF program in the nation. As evidence of effective management, there have been no pledged loan defaults in any of the SRF programs since the inception of the 1991 MFI program.
RATING SENSITIVITIES
REDUCTION IN MODELED STRESS CUSHION: Significant deterioration in aggregate borrower credit quality, increased pool concentration, or increased leveraging resulting in the program's inability to pass Fitch's 'AAA' liability default hurdle would put downward pressure on the rating. The Stable Rating Outlook reflects Fitch's view that these events are not likely to occur.
CREDIT PROFILE
The EFC provides financial assistance for eligible projects within the state under three separate SRF programs: the 2010 MFI program, the closed 1991 MFI program (rated 'AAA' by Fitch), and the NYCMWFA financing program (senior and subordinate bonds rated 'AAA'/'AA+' by Fitch).
The 2010 MFI program is structured using cash flow model methodology, wherein pledged loan repayments made in excess of bond debt service protect bondholders from risk of payment deficiencies.
FINANCIAL STRUCTURE EXHIBITS SOLID DEFAULT TOLERANCE
As a measure of financial strength, Fitch calculates each SRF program's asset strength ratio (PASR), which includes total scheduled pledged loan repayments, reserves (if any) and account earnings divided by total scheduled bond debt service. The 2010 MFI's PASR is solid at approximately 1.6x, and in line with Fitch's 'AAA' median. Because of this coverage, cash flow modeling demonstrates that the program can continue to pay bond debt service even with hypothetical loan defaults of 87% in the first four years of the program's life and 100% over the middle and last four years. Per Fitch criteria, a 90% recovery is applied when determining default tolerance.
The default tolerance produced by the PSC is in excess of Fitch's 'AAA' liability stress hurdle of 37%. The liability stress hurdle is calculated based on overall pool credit quality as measured by the rating of underlying borrowers, size, loan term, and concentration. The PASR has decreased from 1.9x to 1.6x since Fitch's last review, which is indicative of slightly more program leverage.
Annual debt service coverage, which excludes amounts released to the 2010 MFI program from the other SRF programs, is projected to be a minimum of 1.5x.
HIGH-QUALITY LOAN POOL WITH MODERATE CONCENTRATION
The pool program consists of 283 borrowers, the top 10 of which comprise approximately 53% of outstanding loan obligations. Westchester County (GO bonds rated 'AAA') remains the largest borrower, representing 19.7% of outstanding pool loan principal. Single-borrower and top 10 concentration measures are mostly in line with Fitch's 'AAA' median. The remaining top 10 borrowers range in size from 1.9%-9.7% of the pool.
Fitch estimates that approximately 90% of program participants exhibit investment-grade credit quality, with the large majority rated 'A' or higher. In aggregate, pool credit quality is in line with similar municipal pools as reflected by a 'AAA' liability stress of 37% (lower liability stresses correlate to stronger credit quality), which nearly matches Fitch's median. Approximately 87% of loan repayments are secured by GO pledges, 11% secured by utility net revenues and the remaining portion secured by other security types; 2010 MFI pool composition remains fairly stable.
ENHANCEMENT PROVIDED PRIMARILY BY OVERCOLLATERALIZATION
The 2010 MFI bonds are protected from losses primarily by surplus loan repayments made in excess of bond debt service (overcollateralization). In addition to overcollateralization, the 2010 MFI bonds are supported on a subordinate-lien basis by debt service reserve releases (deallocations) from the 1991 MFI and NYCMWFA programs. Finally, if the previously mentioned support methods are insufficient to cover 2010 MFI bond payment deficiencies, non-pledged amounts in the clean water and drinking water SRF equity accounts will be used. Because of the subordinate-lien nature of the deallocations and due to uncertainty that such pledges will be available throughout the 2010 MFI program's expected life, such amounts were excluded in Fitch's cash flow model analysis.
CROSS COLLATERALIZATION, INTERCEPTABLE AID PROVIDE ADDITIONAL PROTECTION
The clean water SRF (CWSRF) and drinking water SRFs (DWSRFs) are accounted for separately. However, the funds are cross-collateralized in that the 2010 MFI allows available resources in the CWSRF and DWSRF to be available for lending to either SRF. This cross-collateralization feature links the SRF programs and thus allows Fitch to combine the funds in its modeling analysis.
Underlying loans are subject to a state intercept mechanism in the event of delinquent repayments. However, Fitch conservatively did not consider this mechanism in its analysis, as evidence of each borrower's interceptable aid was not provided.
STRONG PROGRAM MANAGEMENT AND UNDERWRITING
The EFC was created by the EFC Act in 1970 as a public benefit corporation of the state. EFC manages the SRF programs on behalf of the federal grant recipients which include the Department of Environmental Conservation (clean water SRF program) and the Department of Health (drinking water SRF program). As a result of strong loan underwriting and monitoring, the EFC SRF programs have never experienced a default.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'State Revolving Fund and Leveraged Municipal Loan Pool Criteria' (May 17, 2013);
--'State Revolving Fund and Leveraged Municipal Loan Pool 2013 Peer Review' (Oct 31, 2013);
--'Revenue-Supported Rating Criteria' (June 3, 2013).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499
State Revolving Fund and Leveraged Municipal Loan Pool Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746076
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=831528
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