CHICAGO--()--Fitch Ratings affirms its 'AAA' rating on the following Massachusetts Water Pollution Abatement Trust's (MWPAT) (South Essex Sewerage District [SESD] loan program) bonds:
--$3.25 million in outstanding revenue bonds, series 1994A and 1996A.
The Rating Outlook is Stable.
The bonds are secured by loan repayments payable from SESD, pledged debt service reserves, interest earnings, Commonwealth Assistance Payments (CAP), and available released reserves from the deficiency fund established under MWPAT's pool program (currently rated 'AAA' with a Stable Outlook by Fitch).
KEY RATING DRIVERS
SUBSTANTIAL PLEDGED RESERVES: Debt service reserves currently total approximately $22 million or 670% of outstanding bond principal. These reserves do not include certain pledged reserves released to the deficiency fund established under the MWPAT's pool program, which are also available for payment of debt service. Reserves pledged solely to the SESD bonds allow the bonds to withstand 100% loan repayment defaults through final bond maturity in 2016.
PRUDENT RESERVE INVESTMENT PRACTICES: Reserve investment practices are generally strong as assets are currently invested in repurchase agreements or guaranteed investment contracts with providers that are highly rated and/or fully collateralized by U.S. Treasury and agency securities in excess of 100%.
SOLID LOAN REPAYMENT HISTORY: SESD has not failed to pay its loans to MWPAT when due, and MWPAT has not experienced a loan default in any of its leveraged programs to date.
RESERVES SIGNIFICANTLY COLLATERALIZE STANDALONE STRUCTURE
The MWPAT issues bonds to fund loans for its clean water and drinking water state revolving funds. MWPAT has issued bonds under indentures for four separate programs, one each for the SESD, Massachusetts Water Resources Authority, the City of New Bedford, and also for MWPAT's larger statewide pool program. The MWPAT SESD outstanding program bonds were issued under the standalone indenture to prevent borrower concentration in the statewide pool program due to significant capital requirements associated with SESD.
While the primary security for the bonds is loan repayments from SESD, MWPAT pays a portion of bond debt service with amounts received by the Commonwealth (i.e. the CAP); the CAP allows for below-market interest rate loans to SESD. The bonds are further secured by debt service reserves that are required to be maintained at the greater of 50% of the aggregate outstanding bond principal or maximum annual loan repayments. Reserves dedicated to the MWPAT SESD program bonds substantially exceed this level because some of the MWPAT SESD bonds have been escrowed to maturity through refunding bonds issued through the MWPAT statewide pool program.
EXCESS RESERVES RELEASED INTO STATEWIDE POOL
As the MWPAT SESD bonds amortize, a portion of the reserves are released to the deficiency fund and are available to cover any shortfalls within any of MWPAT's standalone pool programs as well as MWPAT's statewide pool program on a parity basis. While reserves are deallocted as the bonds amortize (according to a set schedule), MWPAT's projected release schedule does not deallocate reserves at a level that would decrease the significant coverage provided to the outstanding SESD loan program bonds.
SOLID INVESTMENT PRACTICES
MWPAT SESD program debt service reserves are invested primarily in investment agreements with providers that are highly rated and/or fully collateralized with third-party custodians. The sustained credit quality of the reserve investments is important to maintaining the current 'AAA' ratings.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 12, 2012);
--'State Revolving Fund and Leveraged Municipal Loan Pool Criteria' (May 21, 2012);
--'Counterparty Criteria for Structured Finance Transactions' (May 30, 2012).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
State Revolving Fund and Leveraged Municipal Loan Pool Criteria
Counterparty Criteria for Structured Finance Transactions