Fitch Rates Massachusetts HFA's $107.18MM Housing Bonds 2015 A, B, & C 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AA-' rating to the following Massachusetts Housing Finance Agency's (MHFA) housing bonds:

--$47.91 million MHFA housing bonds, 2015 series A;

--$38.09 million MHFA housing bonds, 2015 series B;

--$21.18 million MHFA housing bonds, 2015 series C.

The bonds are expected to be sold the week of March 17, 2015 and close on or about March 26, 2015.

Fitch also affirms the 'AA-' rating on approximately $1.7 billion of parity housing bonds.

The Rating Outlook on all bonds is Stable.

SECURITY

The 2015 series A, B, & C parity bonds are special obligations of MHFA and are secured by multifamily mortgages, investments, reserves, and revenues held under the general resolution adopted by MHFA on Dec. 10, 2002.

KEY RATING DRIVERS

INSURED/SUBSIDIZED PORTFOLIO: A majority of the underlying multifamily portfolio is either insured or subsidized. The insured portion of the portfolio mitigates risk from potential loan losses. Approximately 67% of the multifamily loans (based on outstanding loan balance) are FHA insured, primarily under the FHA risk share program. Of the remaining 33%, approximately 63% of the properties receive federal or commonwealth subsidies.

SUFFICIENT PROGRAM OVERCOLLATERALIZATION: The program has an asset parity ratio of 120% based on 2014 FY audited financial statements. Additionally, Fitch-stressed cash flows demonstrate sufficient asset parity throughout the term of the bonds as well as sufficient reserves to handle cash flow interruptions from potential loan delinquencies.

SOUND LOAN PORTFOLIO: The 316 multifamily developments, with an outstanding loan balance of approximately $1.8 billion, are well-seasoned and relatively dispersed throughout the state of Massachusetts. The portfolio has a strong history of loan performance and currently has only one delinquent mortgage which represents less than 0.1% of the portfolio. Additionally, current levels of rolling construction risk are mitigated by the strong levels of overcollateralization within the program.

STRONG MANAGEMENT OVERSIGHT: MHFA has a strong history of administering multifamily programs and its management is viewed as a credit strength.

RATING SENSITIVITIES

REMOVAL OF ASSETS: The program's asset parity requirement per the general resolution is 101% and, if met, MHFA can remove funds, which could present negative rating pressure. However, Fitch considers this risk is remote given management's history of leaving sufficient funds within the resolution.

LEVELS OF CONSTRUCTION: While the program currently has flexibility to take on additional construction risk, substantial additions of new construction projects could put negative pressure on the rating.

CREDIT PROFILE

The 2015 series A, B, and C bonds are the 40th issuance under the general resolution and are issued on parity with approximately $1.7 billion in outstanding bonds. A portion of the 2015 series B bonds and the series C bonds will be used to provide permanent financing for certain multifamily residential developments. The remaining portion of the 2015 series B bonds and the series A bonds, as well as other funds available under the resolution, will be used to acquire United States treasury obligations which will be deposited with the trustee and used to redeem certain outstanding housing bonds on June 1, 2015.

The underlying portfolio consists of 316 multifamily developments that were previously financed under or transferred into the resolution. The aggregate outstanding mortgage balance is approximately $1.8 billion. The portfolio has a strong presence of insurance as approximately 67% of the portfolio is insured, primarily under the FHA risk share program. Of the remaining 33%, approximately 63% receive federal or commonwealth subsidy payments. On a loan balance basis, approximately 12% of the portfolio is both uninsured and unsubsidized. The portfolio is well-seasoned and is relatively dispersed throughout the state of Massachusetts, with approximately 35% of the portfolio located in Boston. Fitch views a portfolio with 40% or more in one market area as being highly concentrated. Any potential concerns over this portfolio's geographic concentration are currently mitigated by the program's overcollateralization levels.

As of FY 2014 audited financial statements, the program had an asset parity ratio of 120%, a net interest spread of 24%, and a net operating margin of 22%. Additionally, the most recent consolidated cash flow statements, which incorporate various interest-rate and bank-bond stress scenarios, demonstrate a minimum asset parity ratio of 114.3% for the remaining life of the bonds. This overcollateralization position is adequate to handle Fitch stressed loss scenarios for the current rating level. The portfolio has a strong history of performance and currently has only one delinquent mortgage, which represents less than 0.1% of the portfolio.

The general resolution permits various types of loan financings, including both new and existing single-family and multifamily mortgages. The potential for unexpected changes in the portfolio's loan composition is mitigated by MHFA's ongoing disclosure for the bond program, which Fitch continues to monitor. Other concerns center on Mass Housing's ability to withdraw assets down to the general resolution's requirement of 101% asset parity ratio. These concerns, however, are mitigated by the program's strong financial position and Mass Housing's history of leaving excess assets within the resolution.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Pooled Multifamily Housing Bonds', dated Dec. 16, 2014;

--'Revenue-Supported Rating Criteria', dated June 16, 2014.

Applicable Criteria and Related Research:

Rating Criteria for Pooled Multifamily Housing Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=829968

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981237

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Contacts

Fitch Ratings
Primary Analyst:
Ryan J. Pami, +1-212-908-0803
Associate Director
Fitch Ratings, Inc.
33 Whitehall St
New York, NY 10004
or
Secondary Analyst:
Maura McGuigan, +1-212-908-0591
Senior Director
or
Committee Chairperson:
Mario Civico, +1-212-908-0796
Senior Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Ryan J. Pami, +1-212-908-0803
Associate Director
Fitch Ratings, Inc.
33 Whitehall St
New York, NY 10004
or
Secondary Analyst:
Maura McGuigan, +1-212-908-0591
Senior Director
or
Committee Chairperson:
Mario Civico, +1-212-908-0796
Senior Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com