NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating the following Illinois Housing Development Authority (IHDA) housing revenue bonds:
--$65 million IHDA housing revenue bonds, series 2013 A;
--$35 million IHDA federally taxable housing revenue bonds, series 2013 B.
The Rating Outlook for the bonds is Negative.
The bonds are limited obligations of the issuer secured by the revenues and assets pledged under the master indenture which primarily consist of Ginnie Mae (GNMA) and Fannie Mae (FNMA) mortgage backed securities (MBS). The bonds are not cross-collateralized, and therefore, each series has their own corresponding pool of MBS loans as security, however all residual funds remain in the indenture to provide overcollateralization for both series bonds.
KEY RATING DRIVERS
GNMA/FNMA GUARANTEE: The 'AAA' rating reflects the guarantee of full and timely payments of principal and interest on the MBS regardless of actual performance of the loans.
PASS-THROUGH STRUCTURE: The bonds are set up in a pass-through structure, whereby payments of principal and interest on the MBS are directly passed through to the bondholders on a monthly basis.
U.S. SOVEREIGN LINK: As the ratings of FNMA/GNMA are currently linked to the U.S. sovereign rating, any rating action on the U.S. sovereign rating will directly impact the rating on the bonds.
FNMA DELINKED: Should Fitch's view of the strength of government support as being reduced, the rating of FNMA may be delinked from the U.S. sovereign rating and downgraded.
The $100 million of 2013 A/B bonds are expected to be sold the week of March 4, 2013. The bonds proceeds will be used to purchase existing MBS, totaling the aggregate outstanding bond amount. The 2013 A bonds' MBS portfolio has a 20% cap on FNMA MBS, while the 2013 B bonds have a 15% cap on FNMA MBS. Throughout the term of the bonds, remaining MBS amounts will equal bonds outstanding as all prepayments are directly passed through to bondholders on a monthly basis.
As part of its analysis, Fitch reviews the cash flows to ensure the timing of MBS payments to be passed through directly to the bondholders are sufficient to make debt service payments. The cash flows, which were run at various prepayments speeds, factor in all fees and expenses to be incurred under the indenture. Under all prepayment speed scenarios, the cash flows demonstrate that the assets in the indenture are sufficient to make debt service payments throughout the term of the bonds.
Fitch reviews the legal documents to ensure that instructions are provided to the trustee to notify the lender if an MBS payment is missed. The Indenture states the trustee must notify GNMA/FNMA no later than one business day after a payment is missed. Additionally, the Indenture is closed and does not allow for any additional bonds to be issued.
The rating and Rating Outlook of FNMA is currently linked to the U.S. sovereign rating, which reflects the U.S. government's direct financial support of FNMA. Fitch's view is this support was strengthened by the most recent U.S. Treasury's Senior Preferred Stock Purchase Agreement. However should Fitch's view of this strength of support be reduced, the rating of FNMA could be delinked from the U.S. sovereign and downgraded.
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;
--'Fitch Affirms Fannie Mae and Freddie Mac at 'AAA'; Outlook Negative' (Nov 28, 2012).
Applicable Criteria and Related Research
Revenue-Supported Rating Criteria