Fitch Rates $535MM NYCMWFA Water & Sewer Bonds 2008 Series B 'AA/F1+'

NEW YORK--(Business Wire)--
Fitch Ratings assigns a rating of 'AA/F1+' to the $535,000,000 New
York City Municipal Water Finance Authority (the Authority), water and
sewer system revenue bonds, adjustable-rate fiscal 2008 series B,
consisting of:

--$200,000,000 fiscal 2008 Subseries B-1;

--$100,000,000 fiscal 2008 Subseries B-2;

--$135,000,000 fiscal 2008 Subseries B-3;

--$100,000,000 fiscal 2008 Subseries B-4.

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 four separate standby bond purchase agreements (SBPAs)
provided by: JPMorgan Chase Bank, National Association, for the fiscal
2008 subseries B-1 bonds; Lloyds TSB Bank plc, acting through its New
York Branch, for the fiscal 2008 subseries B-2 bonds; Bank of America,
N.A., for the fiscal 2008 subseries B-3 bonds; and BNP Paribas, acting
through its San Francisco Branch for the fiscal 2008 subseries B-4
bonds. The short-term ratings will expire on the following scheduled
termination dates: March 17, 2009 for the fiscal 2008 subseries B-1
bonds; March 18, 2011 for the fiscal 2008 subseries B-2 bonds; March
18, 2013 for the fiscal 2008 subseries B-3 bonds; and March 18, 2011
for the fiscal 2008 subseries B-4 bonds, unless such dates are
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: pay the principal
and interest on certain of the Authority's outstanding water and sewer
revenue bonds and to 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, 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 for the fiscal 2008 series B bonds are: Goldman,
Sachs and Co. for the fiscal 2008 subseries B-1 Bonds; JPMorgan
Securities Inc. for the fiscal 2008 subseries B-2 bonds; Banc of
America Securities LLC for the fiscal 2008 subseries B-3 bonds; and
Citigroup Global Markets Inc. for the fiscal 2008 subseries B-4 bonds.
The bonds are expected to be delivered on or about March 19, 2008.

The fiscal 2008 subseries B-2 and B-3 bonds initially bear
interest in the daily interest rate mode, and fiscal 2008 subseries
B-1 and B-4 bonds in the weekly rate mode. Bonds may also be converted
to a daily, 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 April 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: on each interest rate
mode conversion date; on each interest reset date for bonds in the
commercial paper and flexible rate modes; upon the expiration or
earlier termination of the SBPA and on any substitution of the SBPA
which results in a reduction or withdrawal of the ratings assigned to
the bonds. Optional 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 New York
Water Board (the board) for fiscal 2008, revenues continue to track
below budget through the first eight months of the current fiscal year
due to greater than forecasted account delinquencies negatively
offsetting a 4% 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 is expected to result in a modest
operating surplus for fiscal 2008 and allow the board to forgo a
mid-year rate increase, as was previously contemplated.

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 on
Fiscal 2008 Series B 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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