Fitch Confirms Maine HHEFA's Revs at 'AA'; Outlook Stable

CHICAGO & NEW YORK--(BUSINESS WIRE)--Fitch Ratings has confirmed its 'AA' rating on the $14 million Maine Health and Higher Educational Facilities Authority (HHEFA) (the authority) revenue bonds, series 2006G. In addition, Fitch affirms its rating on approximately $1.4 billion of the authority's outstanding reserve fund resolution bonds at 'AA'. The series 2006G bonds are scheduled to be reoffered through negotiation during the week of July 14th. The bonds were initially issued on Sept. 7, 2006 and are being converted from an auction rate to a long-term interest rate. The Rating Outlook is Stable.

The 'AA' rating and Stable Outlook reflect the diversity, low credit risk, and security of loans within the Maine HHEFA loan pool, a debt service reserve funded at maximum annual debt service (MADS) and backed by the state's moral obligation, a state-aid intercept mechanism to assure loan repayments, and a sizable supplemental operating fund.

Virtually all of the state's eligible health care and higher education institutions use Maine HHEFA as their primary borrowing vehicle because it offers participants the lowest cost of capital. Maine HHEFA's loan pool consists of 66 borrowers, with moderate single-borrower concentration; the largest, the Maine Health System, represents 15% of the total outstanding portfolio, and the top 10 borrowers account for approximately 63% of the outstanding loan balance. Approximately 53% of the outstanding loan balances are to hospitals, 32% to higher education institutions, 6% to residential and long-term care facilities, 4% to continuing care retirement communities and 5% to other community mental health centers, clinics, and social service facilities.

Borrowers in the pool generally do not have public ratings. Among the largest nine borrowers, Fitch estimates that two would be rated in the 'AA' category, three in the 'A' category and four in the 'BBB' category. In addition to a senior lien on gross revenues and a mortgage on most property and/or financed projects, the loans are backed by a state-aid intercept.

A debt service reserve for all parity debt is funded by bond proceeds at 100% of MADS. The debt service reserve totals $128.7 million, or 9.2% of total bond principal outstanding. Approximately 99% of the reserves are in collateralized investment agreements that, pursuant to the reserve fund resolution, must be with institutions rated at least 'AA' by rating agencies. The debt service reserve is backed by a state moral obligation make-up provision if it falls below MADS. Neither the intercept nor the reserve replenishment has ever been utilized.

The operating fund balance, while not pledged, currently totals approximately $33 million and may be used instead of the debt service reserve, in the event of loan delinquencies. Due to strong revenues from administrative fees, management has surpassed its internal goal to grow the operating fund to $25 million two years earlier than expected. Combined, debt service reserves and operating fund balances total $161.7 million, or approximately 11.5% of bond principal outstanding.

Fitch analyzes the default tolerance of Maine HHEFA's portfolio using a stress test that considers loan credit quality, single-risk concentration, debt service reserves and operating funds, loan payments, and historical default and recovery rates for health care and higher educational facilities. Maine HHEFA's reserves and operating funds are sufficient to pay bondholders even if scheduled loan repayments fall short by as much as 34% for four consecutive years, assuming no action is taken by the state to replenish the reserve fund.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.