Oct 4 - Fitch Ratings has assigned an 'AAA' rating to the following state
revolving funds (SRF) revenue bonds issued by the New York State Environmental
Facilities Corporation's (EFC) under the 2010 master financing indenture (MFI):
--Approximately $110 million SRF revenue bonds, series 2012E;
--Approximately $34 million SRF revenue bonds, series 2012F (taxable).
The bonds are expected to price via negotiation during the week of October 15.
Bond proceeds will be used to finance clean water and drinking water projects
and to refund portions of certain series of bonds that were originally issued
under the 1991 MFI. The original proceeds were used to finance water pollution
control and drinking water projects throughout New York.
In addition, Fitch has affirmed its ratings on the following bonds:
--$520.4 million outstanding 2010 MFI SRF revenue bonds, at 'AAA'.
The Rating Outlook is Stable.
The 2010 MFI revenue bonds are secured by pledged borrower loan repayments and
excess available de-allocated reserve account release payments from the 1991 MFI
senior and subordinate lien bonds (rated 'AAA' with a Stable Outlook by Fitch)
and EFC's New York City Municipal Water Finance Authority (NYCMWFA) program
bonds (senior and subordinate bonds rated 'AAA' and 'AA+', respectively, with a
Stable Outlook by Fitch).
The 2010 MFI senior lien revenue bonds and future 2010 MFI subordinate bonds are
further secured by a parity commitment to use any available amounts in the clean
water and drinking water SRF equity funds to meet shortfalls.
KEY RATING DRIVERS
STRONG PROGRAM ENHANCEMENT: Loan repayments are pledged and long-term equity is
available to provide significant overcollateralization. This enables obligations
issued under the 2010 MFI program to perform even if there is a high level of
SOLID LOAN SECURITY: All loans are secured by the obligors' general obligation
(GO) or net system revenue pledges.
CROSS-COLLATERALIZATION STRENGTHENS PROGRAM: The clean water SRF (CWSRF) and
drinking water SRF (DWSRF) are cross-collateralized with one another. This
allows shortfalls in one fund to be covered by surpluses in the other, further
enhancing bondholder security.
RELATIVELY WEAK LEGAL COVENANTS: Certain legal covenants are weaker than in some
other SRF programs, including the 1.15 times (x) additional release test. This
serves as the program's coverage requirement, along with the lack of a required
debt service reserve at the 2010 MFI level. However, Fitch expects the EFC to
maintain high coverage levels and loan quality.
POOL FUNDS WATER AND WASTEWATER PROJECTS
The 2010 MFI is an open indenture with bonds issued under separate supplemental
series indentures. The program bonds are structured using a traditional cash
flow model. The bonds are secured by borrower loan repayments, de-allocated
reserve amounts and available equity. Bond proceeds are typically used to fund
loans to local governments and other public entities throughout the state for
water pollution control and drinking water projects.
SIGNIFICANT ABILITY TO WITHSTAND RATING STRESS HURDLE
The program achieves significant excess coverage for the 2010 MFI bonds by
pledging repayments from loans funded from both bond proceeds and equity
totaling approximately $1.5 billion. Excess coverage is also derived from more
than $590 million in available long-term equity investments, derived primarily
from recycled funds. Program resources exceed Fitch's portfolio stress
calculator (PSC) stress hurdle of 25% at the current rating level.
The overcollateralization from pledged loan repayments alone would allow the
bonds to perform, even given loan defaults of 83.4%, 100%, 100% over the first,
middle and last four years of the bonds life, respectively. This is well in
excess of the Fitch's PSC stress hurdle of 25%. The clean water and drinking
water SRF programs are cross-collateralized, with excess moneys of the clean
water account securing debt of the drinking water account and vice versa.
RELEASES FROM OTHER EFC PROGRAMS BENEFIT BONDS
In addition, bondholders benefit from de-allocated reserves from the senior and
subordinate liens of the 1991 MFI and EFC's NYCMWFA bonds (ranging between $72
million and $85 million annually over the next several years). Fitch considers
in its analysis that the releases from the 1991 MFI will be reduced to $0 by
fiscal year 2037, the final maturity of bonds issued under the 1991 MFI; the
indenture's lien was closed in 2010. Further, the decline in releases may be
accelerated by the potential future refunding of bonds into the 2010 MFI for
interest rate savings.
EFC's NYCMWFA senior lien releases will also decline to $0 by fiscal 2037 if no
additional bonds are issued under this lien. The 2010 MFI bonds that will be
outstanding following this issuance are scheduled to fully mature in 2042.
MODERATE BORROWER CONCENTRATION
The portfolio's concentration risk is moderate with the largest borrower -
Westchester County (GO bonds rated 'AAA' by Fitch) - representing 10% of the
total portfolio. However, the program should continue to diversify as the 2010
MFI is expected to replace the existing 1991 MFI, which will have 172 borrowers
after certain bonds are refunded with this issuance.
UNDERLYING BORROWER CREDIT QUALITY FAVORABLE
The 2010 MFI pool's loan credit quality is strong. Fitch estimates that at least
92% of all loan principal is of investment-grade quality. Furthermore,
underlying loan security is solid, with loan repayments primarily secured by
each entity's GO pledge or, if the entity is a public authority, by the net
revenues of the system's utility.
BELOW-AVERAGE LEGAL STRUCTURE
The program's legal structure contains certain covenants that are relatively
weaker than some other similarly rated SRF programs. No debt service reserve
will be funded for the series 2012 bonds (or outstanding bonds). Further, the
additional release test, established under the supplemental indentures, requires
1.15x coverage on senior and subordinate lien debt. Despite the legal structure,
Fitch believes program management will continue to keep coverage at levels that
insure the program's high credit quality given historical performance and