Fitch Rates DASNY's $140MM School Revs 'A+'/Underlying

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'A+' underlying rating to approximately $140 million Dormitory Authority of the State of New York (DASNY) school district revenue bond financing program revenue bonds including the $110 million series 2008A and $30 million series 2008B. The bonds will be sold through negotiation on June 10th. The rating is an underlying rating as the bonds are expected to be insured. Fitch also affirms the 'A+' rating on outstanding program bonds issued by DASNY.

Fitch's 'A+' programmatic rating for the DASNY school district revenue bond financing program is based on the credit quality of the State of New York and the program's legal provisions, including a statutory school aid intercept available to provide funds to repay the bonds if needed. School aid intercept ratings such as this one are correlated to state bond ratings and may rise or fall with a change in the state's bond rating, among other circumstances. Fitch rates the general obligation (GO) debt of New York 'AA-' with a Positive Rating Outlook.

Under the program, borrowing districts deliver GO bonds to DASNY as evidence of their separate obligations to repay their loans. The bonds are expected to be repaid from district loan payments to DASNY. No school district is obligated to make payments on behalf of any other district, and the pledged state aid payable to each district secures only the obligations of that individual district.

A statutory school aid intercept enhances the credit quality of the districts' GO pledges. Loan payments to DASNY are due at least 45 days prior to debt service, allowing for a timely trigger of the intercept mechanism. Borrowing districts agree to assign and pledge to DASNY any state aid funds due to their district. Pursuant to statute and a memorandum of understanding between DASNY, the state comptroller, and the New York State Education Department, upon any school district payment delinquency the comptroller must pay to the bond trustee any eligible state funds due and otherwise available to the delinquent school district. Despite the DASNY program's provisions to allow for probable timely bond payment, the rating also is based in part on the bonds' ultimate recovery prospects even in the unlikely event of a missed bond payment. Substantial note issuance could dilute or exhaust the amount of available interceptable state funds, since district noteholders also benefit from state aid intercept provisions in the event of default.

Series 2008A bonds includes funds for the following school districts: $16.4 million for Albany city school district; $10 million for East Syracuse-Minoa Central school district; $31.4 million for the city school district of the city of Norwich, $6.5 million for enlarged Ogdensburg central city school district, $11.9 million for Onondaga central school district; $9 million for Rome city school district; $15 million for enlarged city school district of the city of Watertown; and $12.2 million for Whitney Point central school district. Series 2008B bonds will provide $30 million for Roosevelt Union free school district. Fitch does not have underlying ratings on the school districts.

Bond proceeds will be used to redeem outstanding bond anticipation notes and/or provide funds for capital facilities. The eight schools in 2008A bonds make loan payments to DASNY on June 1 and December 1. Loan repayment is made to DASNY on February 1 and August 1 for Roosevelt, the one school in 2008B bonds. All school district payments are made in advance of DASNY debt service on the 2008A and 2008B bonds due on October 1 and April 1. The amount of state school aid available for intercept provides satisfactory coverage for debt service.

New York's 'AA-' GO rating recognizes the state's substantial wealth and resources and broad economy, somewhat tempered by uneven performance across the state. Net tax-supported debt ratios (currently 4.9% of personal income) have been relatively stable and are expected to remain above average but still in the moderate range; pensions are well funded. Although the state has taken steps to bolster its financial position in anticipation of future downturns, as reflected in the Positive Outlook, the significance of Wall Street performance to state revenues makes New York particularly vulnerable to a financial market downturn. Continuation of financial services industry losses and related fallout tied to the current credit market problems poses significant near-term uncertainty.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.