Fitch Rtes $200.870MM NYCMWFA Water & Sewer Bnds FY2009 Series BB 'AA/F1+'

NEW YORK--(Business Wire)--
Fitch Ratings assigns a rating of 'AA/F1+' to the $200,870,000 New
York City Municipal Water Finance Authority (the Authority), water and
sewer system second general resolution revenue bonds, adjustable-rate
fiscal 2009 series BB, consisting of: $100,435,000 fiscal 2009
subseries BB-1 adjustable-rate bonds, and $100,435,000 fiscal 2009
subseries BB-2 adjustable-rate bonds. The long-term 'AA' rating and
Stable Outlook on the bonds is based on the Authority's long-term
credit quality.

The short-term 'F1+' rating on the bonds is based on the liquidity
support of two separate standby bond purchase agreements (SBPAs)
provided by Landesbank Hessen Thuringen Girozentrale, acting through
its New York Branch. The short-term rating will expire on the
scheduled termination date of the SBPAs, which is initially Aug. 7,
2013, unless such date is extended, or upon any earlier termination of
a respective SBPA. Fitch's short-term rating expires on the expiration
or termination of any respective SBPA.

Bond proceeds will be used by the Authority to: (1) pay the
amounts due on the Authority's outstanding Commercial Paper and to (2)
pay certain costs of issuance.

Each SBPA provides for the payment of the purchase price of
tendered bonds during the daily and weekly rate modes in the event the
proceeds of a remarketing of the bonds following an optional or
mandatory tender are insufficient to pay the purchase price. The SBPAs
are sized to provide for the entire principal amount of the respective
series of bonds that each supports, plus interest coverage of 35 days
calculated at a maximum interest rate of 9%, based on a year of 365
days. The Bank of New York Mellon, as tender agent, is required to
give notice to the bank in the event that remarketing proceeds are
insufficient to pay the purchase price for tendered bonds. The
remarketing agents are: Citigroup Global Markets Inc. for the fiscal
2009 subseries BB-1 bonds; and Morgan Stanley & Co. Incorporated for
the fiscal 2009 subseries BB-2 bonds. The bonds are expected to be
delivered on or about Aug. 7, 2008.

The fiscal 2009 subseries BB-1 and BB-2 bonds initially bear
interest in the daily interest rate mode. Bonds may also be converted
to a weekly, commercial paper, flexible, or fixed interest rate mode.
While the bonds bear interest in the daily or weekly rate modes,
interest will be payable on the 15th calendar day of each month,
commencing Aug. 15, 2008. Holders of bonds bearing interest in the
daily or weekly rate modes may tender their bonds for purchase upon
delivery of prior notice to the remarketing and tender agents.

Bonds are subject to a mandatory tender: (1) on each interest rate
mode conversion date; (2) on each interest reset date for bonds in the
commercial paper and flexible rate modes; (3) upon the expiration or
earlier termination of the SBPA; and (4) on any substitution of the
SBPA which results in a reduction or withdrawal of the ratings
assigned to the bonds. Optional and mandatory redemption provisions
also apply to the bonds pursuant to the terms of the documents.

The 'AA' rating on the Authority's first general resolution (FGR)
and second general resolution (SGR) water and sewer system revenue
bonds reflects unique structural protections for bondholders, the
system's sound financial operations, adequate water supply, and
moderate rates. The rating also considers the enormous capital
improvement program (CIP) needed to address the water, wastewater
treatment, and infrastructure replacement needs of New York City's
water and sewer system.

The Authority's bondholders benefit from legal protections
provided by a debt structure similar to those within structured
finance. Fitch believes the legal framework is stronger than that of
other U.S. municipal water/sewer bonds. The rating reflects the
bankruptcy remote, statutorily defined nature of the issuer; ownership
of system revenues by the bankruptcy remote board; annual required
adjustment of water rates to a level to provide 1.15 times (x)
coverage of FGR bond annual debt service and 1x coverage on SGR bonds
and operating expenses; a gross lien on revenues provided to
bondholders; and a detailed review of relevant legal precedents and
opinions. Revenues are collected in a lock box controlled by the
trustee and are used to pay debt service of FGR and SGR bonds before
operations and maintenance (O&M), which differs from the practice for
most U.S. water and sewer debt. These layers of protection serve to
shield bondholders significantly, but not entirely, from the
operational risks of the city's massive water and sewer enterprise, as
well as other city government operations.

The Authority's SGR bondholders benefit from similar legal
protections afforded FGR bondholders. SGR bondholders' claim on gross
revenues is subordinate only to FGR debt service deposits, authority
administrative costs, and the FGR debt service reserve fund (DSRF).
Following such deposits, revenues flow from the subordinated
indebtedness account of the FGR directly to the SGR revenue account to
pay SGR debt service. Only after required deposits under the SGR are
satisfied are funds released from the trustee-controlled lock box to
pay operations and maintenance.

Despite a sizeable 11.5% rate increase adopted by the board for
fiscal 2008, revenues for fiscal 2008 are estimated to be below budget
by approximately $51 million due to greater than forecasted account
delinquencies negatively offsetting an increase in water consumption.
However, Fitch views positively the board's proactive response to the
revenue shortfall, which has included the implementation of a payment
incentive program for delinquent customers, reducing the threshold
applicable to accounts eligible for termination of service, and
gaining legislative approval to conduct a lien sale program for
property owners independent of the existence of property tax liens.
The enforcement mechanisms coupled with lower than budgeted operation
and maintenance costs and debt service payments allowed the board to
forgo a mid-year rate increase, as was previously contemplated, and is
expected to result in a modest operating surplus for fiscal 2008.

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, New York
Trudy Zibit, +1-212-908-0689
(for information concerning the Fiscal 2009
Series BB bonds and the short-term rating)
Christopher Hessenthaler, +1-212-908-0773
(for information concerning the Authority)
Cindy Stoller, +1-212-908-0526 (Media Relations)

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