Fitch Rates New York City TFA $700MM Building Aid Revs 'A+'

NEW YORK--(Business Wire)--
Fitch Ratings assigns an 'A+' rating to $700 million New York City
Transitional Finance Authority (TFA) building aid revenue bonds,
fiscal 2008 series S-1. The bonds are scheduled to sell through
negotiation the week of June 9th. Fitch also affirms the 'A+' rating
of $1.3 billion outstanding TFA building aid revenue bonds. The Rating
Outlook is Positive.

The 'A+' rating is based on the credit quality of the State of New
York (the state), as bonds are payable from annual state
appropriations of building aid. State building aid assists local
school districts across the state with the cost of constructing and
improving elementary and secondary education facilities. Appropriation
risk is minimal given the constitutional mandate for, and strong
history of, state support for education. Moreover, the additional
bonds test (ABT) only considers aid associated with projects that have
already been approved by the state, even though aid related to
projects that will be approved by the state in the future is also
pledged to the bonds. Fitch rates general obligation debt of the state
'AA-' with a Positive Rating Outlook.

In the 2006 state legislative session, the TFA was authorized to
issue $9.4 billion for education to address the capital demands of the
Campaign for Fiscal Equity (CFE) school funding lawsuit. As permitted
by the legislation, the city assigned all of its state building aid to
the TFA to secure the bonds. Since then, the TFA has issued two series
of building aid revenue bonds, in November 2006 and March 2007. The
city anticipates future building aid revenue bond issuance, including
$2.1 billion in fiscal 2009 and $600 million in fiscal 2010.

State building aid, which is earned on an individual project
basis, consists of confirmed building aid and incremental building
aid. Confirmed building aid refers to aid payable for projects that
have already been approved by the state. Such aid is subject to annual
state appropriation but is not subject to any additional statutory or
administrative conditions or approvals. The state has covenanted that
the calculation of reimbursable costs for a project will not change
once the project has been approved; the level of reimbursement can
change over time pursuant to a statewide formula that is calculated
every year, but this ratio has been relatively stable over time.
Incremental building aid refers to state building aid to be received
for projects approved by the state in the future.

Both confirmed and incremental building aid are the property of
the TFA and are pledged to the bonds. However, the ABT considers only
confirmed building aid. In order for additional debt to be issued,
confirmed building aid payable in the fiscal year preceding each year
in which bonds are scheduled to be outstanding must be at least 1 time
(x) debt service in that year. Since state building aid for a given
project is provided over 30 years, this allows for a level debt
service structure for the bonds in which coverage by confirmed
building aid drops from a high of about 6.7x in fiscal 2008 to a low
of about 1.9x in fiscal 2036. Fitch expects that the incremental
building aid generated by the city's ongoing education capital program
will result in substantially higher actual coverage in the outyears.
The average state reimbursement rate for education projects in the
city currently is about 50%, and the TFA receives all building aid
regardless of whether the project is financed with TFA state building
aid bonds or through a different financing mechanism.

Pursuant to the TFA indenture, since building aid is now TFA
revenue it must be available first to previously outstanding TFA
future tax secured bonds. Given the very strong coverage that the
pledged personal income and sales tax revenues provide for future tax
secured bonds (about 9.2x in fiscal 2008), it is unlikely that
building aid would ever be needed for this purpose. In its fiscal 2009
budget, the state did not act on a city request to increase TFA future
tax secured bond borrowing authority to $19.5 billion, from $13.5
billion.

TFA future tax secured bonds sold after the date of the initial
issuance of the building aid bonds have no claim on building aid. The
payment of building aid is also subject and subordinate to certain
other prior statutory and state constitutional claims, but Fitch does
not believe that these will impair the ability to pay debt service.
Holders of the TFA building aid bonds benefit from the statutory
covenants in the original TFA Act prohibiting action that would impair
bondholders and the bankruptcy-remote nature of the issuer. However,
since the pledged revenue stream requires annual state appropriation,
the bondholders do not enjoy the same insulation from government
operations that is a key factor in the 'AA+' rating of the TFA future
tax-secured bonds.

The fiscal 2008 series S-1 bonds are due Jan. 15, 2010-2038. Call
provisions are yet to be determined.

For more information on the TFA building aid revenue bonds, see
Fitch Research dated Nov. 2, 2006. For more information on the State
of New York, see Fitch Research dated March 12, 2008. Both are
available on the Fitch Ratings web site www.fitchratings.com.

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.

Fitch Ratings
Douglas Offerman, +1-212-908-0889
Richard Raphael, +1-212-908-0506
Amy Laskey, +1-212-908-0568 (New York)
Media Relations:
Christopher Kimble, +1-212-908-0226 (New York)

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