NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating the following Illinois Housing Development Authority (IHDA) housing revenue bonds:
--$17.6 million IHDA housing revenue bonds, series 2013 C.
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 that primarily consist of Ginnie Mae (GNMA) and Fannie Mae (FNMA) mortgage backed securities (MBS) and also include excess revenues that accumulate in a reserve fund. The bonds are not cross-collateralized, and therefore, each series has its own corresponding pool of MBS loans as security.
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 underlying loans.
PASS-THROUGH STRUCTURE: The bonds are set up in a pass-through structure, whereby scheduled principal payments, principal repayments, and interest payments on the MBS are directly passed through to the bondholders on a monthly basis.
RESERVE FUND ACCUMULATION: The rating reflects the availability of residual funds that accumulate in a reserve fund throughout the term of the bonds to satisfy all prepayment stress scenarios.
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 affect the rating on the bonds.
FNMA DELINKED: Should Fitch's view of the strength of government support for FNMA be reduced or downgraded, the rating of FNMA may be delinked from the U.S. sovereign rating and may result in negative pressure on the bonds.
BANKRUPTCY REMOTE: Fitch considers IHDA to be bankruptcy remote based on its public purposes, predominantly limited recourse debt and its inability under current law to commence a voluntary proceeding under Chapter 9 without legislative or executive action. A change in this status could lead to a change to the rating and constrain it to that of the authority's general obligation debt.
The $17.6 million of 2013 series C bonds are expected to be sold the week of Oct. 7, 2013. The bonds proceeds will be used to purchase existing MBS, totaling the aggregate outstanding bond amount. The 2013 C bonds' MBS portfolio has approximately 40% GNMA MBS and approximately 60% FNMA MBS. Throughout the term of the bonds, remaining MBS amounts will remain greater than or equal to 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 MBS payments to be passed through directly to the bondholders are sufficient to make timely 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, and address the risk of higher coupon MBS prepaying at a faster rate than lower coupon MBS. 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. In the high prepayment stress scenarios, the cash flows demonstrate dependency on residual funds from excess revenues that accumulate in a reserve. The indenture specifies that residual funds must remain in the indenture in an amount sufficient to satisfy all fees.
Fitch reviews the legal documents to ensure that, on a monthly basis, bond debt service payments are not scheduled earlier than the latest distribution date for the MBS securing the bonds. In this case, the latest distribution date is the 25th day of the month (or, if not a business day, the next following business day) and debt service payments are on the first calendar day of the month. Fitch also verifies in the indenture that principal and interest payments on the bonds are made prior to payment of trustee, issuer, or other fees. The trust indenture is closed and does not allow for any additional bonds to be issued.
FNMA's rating and Rating Outlook are 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 or downgraded, the rating of FNMA could be delinked from the U.S. sovereign which may negatively affect the FNMA rating.
Fitch assigns a rating based on preliminary cash flow assumptions. Once the bonds have priced, Fitch will verify that the final versions of the transaction documents and cash flow projections do not materially differ from the draft documents.
Additional information is available at www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 3, 2013);
--'Fitch Affirms Fannie Mae and Freddie Mac at 'AAA'; Outlook Negative' (Nov. 28, 2012).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria