AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following bonds issued by the New York State Environmental Facilities Corporation (EFC) under its 2010 master financing indenture (MFI) program:
--Approximately $80.9 million State Revolving Fund (SRF) revenue bonds (2010 Master Financing Program) (Green Bonds), series 2015B (tax-exempt);
--Approximately $30.4 million SRF revenue bonds (2010 Master Financing Program) (Green Bonds), series 2015C (Federally taxable);
--Approximately $363.7 million SRF revenue bonds (2010 Master Financing Program) (Green Bonds), series 2015D (tax exempt).
The bonds are scheduled to price via negotiation on or after the week of July 20, 2015. Bond proceeds will be used to finance clean water and drinking water projects within the state and to refund or defease in full the series 2005A, 2005B, 2005D, 2006C, and 2007D bonds issued under the 1991 MFI. The refundings are for present value savings estimated at $22 million.
In addition, Fitch has affirmed the following ratings:
--Approximately $885.8 million (pre-refunding) outstanding parity bonds at 'AAA'.
The Rating Outlook is Stable.
SECURITY
The senior lien 2010 MFI revenue bonds are secured by a senior lien pledge on borrower loan repayments and, on a subordinated basis, excess available reserve account release payments from the 1991 MFI program bonds and the senior New York City Municipal Water Finance Authority (NYCMWFA) program bonds. The 2010 MFI bonds are further secured by a parity commitment to use any available amounts in the clean water and drinking water SRF equity funds to meet shortfalls.
KEY RATING DRIVERS
SOUND FINANCIAL STRUCTURE: Fitch's cash flow modeling demonstrates that the program can continue to pay bond debt service even with loan defaults in excess of Fitch's 'AAA' liability rating stress hurdle, as produced using Fitch's Portfolio Stress Calculator (PSC).
HIGHLY-RATED BORROWER POOL: Approximately 89% of the borrowers in the 2010 MFI pool have investment-grade ratings. Most loans are secured by borrowers' general obligation or utility revenue pledges.
AVERAGE POOL DIVERSITY: The loan portfolio has average borrower diversity, with the top 10 borrowers representing approximately 50% of the loan pool. Westchester County is the largest borrower at 16% of the pool.
STRONG PROGRAM MANAGEMENT: EFC manages the largest SRF program in the nation. As evidence of effective management, there have been no pledged loan defaults in any of the SRF programs since the inception of the 1991 MFI program.
RATING SENSITIVITIES
REDUCTION IN MODELED STRESS CUSHION: Significant deterioration in aggregate borrower credit quality, increased pool concentration, or increased leveraging resulting in the program's inability to pass Fitch's 'AAA' liability default hurdle would put downward pressure on the rating. The Stable Outlook reflects Fitch's view that these events are not likely to occur.
CREDIT PROFILE
The EFC provides financial assistance for eligible projects within the state under three separate SRF programs: the 2010 MFI program, the closed 1991 MFI program (rated 'AAA' by Fitch), and the NYCMWFA financing program (senior and subordinate bonds rated 'AAA'/'AA+' by Fitch).
The 2010 MFI program is structured using cash flow model methodology, wherein pledged loan repayments made in excess of bond debt service protect bondholders from risk of payment deficiencies. In addition to the senior lien SRF revenue bonds, a separate series of subordinate guarantee obligations has been issued under the 2010 MFI (the 2010 MFI guarantee). The series related to the 2010 MFI guarantee, which was issued in 2013, is not rated by Fitch.
FINANCIAL STRUCTURE EXHIBITS SOUND DEFAULT TOLERANCE
Fitch's cash flow modeling demonstrates that the program can continue to pay bond debt service even with hypothetical loan defaults of 64% over the first four years, and 100% in the middle and last four years of the program's life (as per Fitch criteria, a 90% recovery is also applied in its cash flow model when determining default tolerance). This is in excess of Fitch's 'AAA' liability rating stress hurdle of 34% as produced by the PSC. The rating stress hurdle is calculated based on overall pool credit quality as measured by the rating of underlying borrowers, size, loan term, and concentration.
Fitch measures financial strength of SRFs by calculating the program asset strength ratio (PASR). The PASR calculation for the 2010 MFI program includes total scheduled loan repayments divided by total scheduled bond debt service. The resulting 2010 MFI PASR is sound at approximately 1.4x, although it falls somewhat below Fitch's 2014 'AAA' median level of 1.8x. The PASR excludes sizeable scheduled reserve releases, which are available on a subordinated basis from the other EFC SRF programs.
HIGH-QUALITY LOAN POOL WITH AVERAGE CONCENTRATION
The pool program consists of 309 borrowers, the top 10 of which comprise approximately 50% of outstanding loan obligations. Westchester and Onondaga Counties (both counties' limited tax general obligation GO bonds rated 'AAA' by Fitch) remain the largest two program borrowers, representing 16% and 11% of outstanding pool loan principal, respectively. Single-borrower and top 10 concentration measures are mostly in line with Fitch's 'AAA' medians. The remaining top 10 borrowers range in size from 1.7%-7.5% of the pool. Expectedly, the growth of the 2010 MFI program continues to contribute to improved pool diversity.
Fitch estimates that approximately 89% of program participants exhibit investment-grade credit quality, with the large majority rated 'A' or higher. In aggregate, pool credit quality is in line with similar municipal pools as reflected by an 'AAA' liability stress of 34% (lower liability stresses correlate to stronger credit quality), which is similar to Fitch's median. Approximately 86% of loan repayments are secured by GO pledges, 14% secured by revenue pledges. The 2010 MFI pool composition has remained mostly consistent since its inception.
LOSS PROTECTION PROVIDED BY OVERCOLLATERALIZATION, FLOWS FROM OTHER PROGRAMS
The bonds' primary form of loss protection is provided by surplus loan repayments pledged under the 2010 MFI program made in excess of bond debt service (overcollateralization). On an annualized basis, such surplus loan repayments overcollateralize aggregate 2010 MFI bond debt service by a minimum of 1.3x. While sufficient, debt service coverage from pledged loan repayments alone and the 2010 MFI's PASR have both decreased over the last two years (minimum annual debt service coverage and the PASR were 1.5x and 1.9x, respectively, in June 2013).
The 2010 MFI bonds are also supported on a subordinate-lien basis by sizeable debt service reserve releases (deallocations) from the 1991 MFI and NYCMWFA programs. Although viewed as a credit positive, because of the subordinate-lien nature of the deallocations and due to uncertainty that such pledges will be available throughout the 2010 MFI program's expected life, such amounts were excluded in Fitch's cash flow model analysis.
If the previously mentioned support methods are insufficient to cover 2010 MFI bond payment deficiencies, non-pledged amounts in the clean water and drinking water SRF equity accounts are also expected to be used should a shortfall occur.
CROSS COLLATERALIZATION, INTERCEPTABLE AID PROVIDE ADDITIONAL PROTECTION
The clean water SRF (CWSRF) and drinking water SRF (DWSRF) are accounted for separately. However, the funds are cross-collateralized in that the 2010 MFI allows available resources in the CWSRF and DWSRF to be available for lending to either SRF. This cross-collateralization feature links the SRF programs and thus allows Fitch to combine the funds in its modeling analysis.
Underlying loans are subject to a state intercept mechanism in the event of delinquent repayments. However, Fitch conservatively did not consider this mechanism in its analysis as evidence of each borrower's interceptable aid was not provided.
STRONG PROGRAM MANAGEMENT AND UNDERWRITING
The EFC was created by the EFC Act in 1970 as a public benefit corporation of the state. EFC manages the SRF programs on behalf of the federal grant recipients which include the Department of Environmental Conservation (CWSRF program) and the Department of Health (DWSRF program). As a result of strong loan underwriting and monitoring, the EFC SRF programs have never experienced a default.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
State Revolving Fund and Leveraged Municipal Loan Pool Criteria (pub. 22 Oct 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=792908
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987989
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987989
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.