Fitch Downgrades L-T Rtg to 'AA+' & Affirms S-T at 'F1+' on $26.2MM MassHousing Hsg Bonds 2009A&B

NEW YORK--()--Fitch Ratings has downgraded the long-term rating to 'AA+' from 'AAA' and affirmed the short-term rating at 'F1+' on the $26,238,000 Massachusetts Housing Finance Agency (MassHousing) bonds consisting of:

--$14,230,000 housing bonds, 2009 series A;

--$12,008,000 housing bonds, 2009 series B (federally taxable).

The Rating Outlook is Stable for the long-term rating.

The rating action is in connection with the substitution of the two irrevocable direct-pay letters of credit (LOCs) currently provided the Bank of New York Mellon (BNYM, rated 'AA/F1+', Stable Outlook) supporting each respective series of bonds with two substitute LOCs to be provided by T.D. Bank, N.A. (rated 'AA-/F1+', Stable Outlook). The substitution date and effective date of the substitute LOCs is Feb. 1, 2016.

KEY RATING DRIVERS:

The long-term rating will continue to be determined using Fitch's dual-party pay criteria and will be based jointly on the underlying rating assigned to those bonds by Fitch (currently rated 'AA-', Stable Outlook), and the rating assigned by Fitch to T.D. Bank, N.A. (rated 'AA-/F1+', Stable Outlook), which will provide the substitute LOCs as support for each series of bonds. The short-term 'F1+' rating will be based solely on the substitute LOCs. For information about the underlying rating see press release 'Fitch Rates Massachusetts HFA's $98MM Hsg Bonds 2015 G, H, and I 'AA-'; Outlook Stable', dated Dec. 8, 2015 available at 'www.fitchratings.com'.

Fitch's dual-party pay criteria consider the likelihood of the failure of both a rated obligor and a bank LOC provider. The methodology results in a long-term rating that is up to two notches higher than the stronger of the two credits if the following conditions are met: (1) both entities have a rating of 'A' or higher; (2) the transaction is structured such that payments from both the municipal issuer and the bank are in the flow of funds and both entities would have to fail to perform before the bonds defaulted; and (3) the credit of the bank and the rated obligor have no more than a medium degree of correlation. Fitch has determined a low degree of correlation between T.D. Bank, N.A. and MassHousing's Housing Bonds which results in a rating of 'AA+' for the bonds. If either the underlying bond rating or the bank rating were downgraded to 'A-' or lower, the dual-party pay criteria could no longer be applied, and the long-term rating assigned to the bonds would then be adjusted to the higher of the bank rating and the underlying bond rating.

Pursuant to the substitute LOCs, the bank is obligated to make regularly scheduled payments of principal of and interest on the bonds in addition to payments due upon maturity, acceleration and redemption, as well as purchase price for tendered bonds. The substitute LOCs have stated expiration dates of Feb. 1, 2021, unless extended or earlier terminated. The substitute LOC for 2009 series A provides full and sufficient coverage of principal plus an amount equal to 55 days of interest at a maximum rate of 12 % based on a year of 365 days. The substitute LOC for 2009 series B provides full and sufficient coverage of principal plus an amount equal to 55 days of interest at a maximum rate of 15% based on a year of 365 days. Each substitute LOC also provides for the purchase price for tendered bonds while in the weekly rate mode. The Remarketing Agent for the bonds continues to be Merrill Lynch, Pierce, Fenner & Smith Incorporated.

RATING SENSITIVITIES

The long-term rating is tied to the long-term rating assigned to MassHousing's Housing Bonds and the long-term rating that Fitch maintains on the bank providing the substitute LOC. Changes to one or both of these ratings may affect the long-term rating assigned to the bonds.

The short-term rating is exclusively tied to the short-term rating that Fitch maintains on the bank providing the substitute LOC and will reflect all changes to that rating.

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

Applicable Criteria

Dual-Party Pay Criteria for Long-Term Ratings on LOC-Supported U.S. Public Finance Bonds (pub. 08 Mar 2013)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=701572

Rating Guidelines for Letter of Credit-Supported Bonds and Commercial Paper (pub. 21 May 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866152

U.S. Municipal Structured Finance Criteria (pub. 23 Feb 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=862222

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=998810

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=998810

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.

Contacts

Fitch Ratings
Primary Analyst
Kasia Reed
Analytical Consultant
+1-212-908-0500
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Linda Friedman
Senior Director
+1-212-908-0727
or
Committee Chairperson
Mario Civico
Senior Director
+1-212-908-0796
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Kasia Reed
Analytical Consultant
+1-212-908-0500
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Linda Friedman
Senior Director
+1-212-908-0727
or
Committee Chairperson
Mario Civico
Senior Director
+1-212-908-0796
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com