Fitch Rates Kansas Development Fin Auth's $96MM Public Water Supply Revolving Loan Fund Revs 'AAA'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to approximately $112 million Kansas Development Finance Authority's (KDFA or the Authority) public water supply revolving loan fund revenue bonds, series 2008DW. In addition, Fitch has affirmed the 'AAA' rating on the outstanding $237 million revenue bonds. The Rating Outlook is Stable. The series 2008DW bonds are scheduled to price during the week of September 8. Bond proceeds will be used to make loans and to reimburse the program for loans already made to governmental entities in the state for drinking water projects. Bond proceeds are also expected to refund certain outstanding bonds for debt service savings.

The 'AAA' rating reflects the state revolving fund (SRF) program's strong security provided by loan repayments and large debt service reserves. After the 2008DW bonds are issued, leveraged reserves will equal approximately $83 million or 25% of total outstanding bonds and provide significant protection from borrower defaults, even under severe stress scenarios.

The rating also reflects the diversified loan portfolio and the program's strong loan agreement provisions. The authority's drinking water loan pool comprises approximately 139 borrowers that benefit from the low-cost capital available for water system improvements. The loan portfolio continues to diversify, with the top 10 borrowers comprising 31% of the pool.

While the program's borrower base consists of many small rural water districts, credit quality of the portfolio has improved primarily due to the authority's strong loan agreement provisions which require a pledge of the entity's unlimited ad valorem tax or water system revenues. Approximately 67% of the pool's borrowers pledge unlimited ad valorem taxes. The remaining borrowers, which pledge water system revenues, must also maintain system rates at 1.4x loan coverage or 1.25x coverage combined with a loan reserve account funded at 10% of loan principal.

With this issue, the program implements a cross-collateralization feature of the separate drinking water SRF and clean water SRF (CWSRF, not rated by Fitch) which allows released moneys from one program to be available for use by the other program.

The authority's strong reserve levels, which are required to be maintained at the greater of 25% of outstanding bond par or maximum annual debt service, provides protection to bondholders against significant leveraged loan defaults. Ample reserves, loan repayments and interest earnings allow the public water supply revenue bonds to withstand borrower defaults of 58%-85% for various four year periods, exceeding Fitch's 'AAA' stress test requirements given the size and credit quality of the loans.

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.