Fitch Rates Iowa's $139MM SRF Bonds 'AAA'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to the Iowa Finance Authority's (the authority) approximately $139 million Iowa state revolving fund revenue bonds, series 2008. The 2008 bonds are scheduled to price via negotiation during the week of Dec. 1. The series 2008 bond proceeds will reimburse the authority for qualifying loans already made to local governments, as well as fund new loans. Fitch has also affirmed the 'AAA' rating on the authority's $236.4 million in outstanding revolving fund revenue bonds. The Rating Outlook is Stable.

The 'AAA' rating reflects the authority's strong program reserves, the cross-collateralization feature, and conservative investment guidelines. The authority leverages moneys from its federally capitalized clean water state revolving fund (CWSRF) and drinking water state revolving fund (DWSRF) under a master trust agreement. Each bond series issued under the master trust agreement is secured by separate portfolios of SRF loans and may also be secured by a debt service reserve funded from CWSRF and/or DWSRF federal capitalization grants, bond proceeds or other available funds. Released reserves, excess loan repayments, and investment earnings from each indenture are deposited into a deficiency fund, which is available to make debt service payments on any bonds issued under the master trust agreement. Because each series of master trust bonds is secured by the deficiency fund, it is anticipated that all master trust bonds will be similarly rated.

Upon issuance of the 2008 bonds and including the outstanding bond issues, the authority's pledged reserves will equal $88 million or 23% of total bonds outstanding. Pledged reserves, excess loan repayments, and interest earnings provide enhancement allowing the bonds to withstand borrower defaults of 34% during the first four-year, 54% during the middle four-year, or 49% during the last projected four-year periods of the bonds' life, which is greater than what Fitch would expect to occur for the program's loan portfolio in an 'AAA' stress scenario, given the pool's quality and diversity.

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