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Fitch Affirms DASNY's $102MM Pledged Assessment Rev Bonds at 'AA+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms the 'AA+' rating on the Dormitory Authority of the State of New York (DASNY) $102 million pledged assessment revenue bonds, series 2010A (federally taxable).

The Rating Outlook is Stable.

SECURITY

The bonds are secured by mandatory assessments by the New York State Workers' Compensation Board on private insurance carriers who underwrite workers' compensation coverage in the state, the State Insurance Fund, and self-insured employers.

KEY RATING DRIVERS

STRONG REVENUE BASE: The mandatory nature of workers' compensation insurance in the state of New York provides a stable base of secured revenues and supports high collection rates.

SOLID BONDHOLDER PROTECTIONS: Bondholders have a priority security pledge on assessments, with first dollars received transferred by the state to the paying agent, and the state covenants not to materially impair the ability of the workers' compensation board to levy assessments.

HIGH COVERAGE LEVELS: Current coverage of more than 30x MADS and the strong collection history for assessments offset a relatively low 1.1x rate covenant. No significant additional issuance under the program is currently planned, and coverage is expected to remain abundant.

SIGNIFICANT NEW YORK STATE PAYMENTS: The New York State Insurance Fund (NYSIF), which represents about 28% of total assessments, is a self-supporting state entity whose liabilities are ultimately the responsibility of the state of New York (general obligations rated 'AA' with a Positive Outlook by Fitch).

CREDIT PROFILE

The proceeds of DASNY's 2010 pledged assessment bonds were used to settle claims related to the Special Disability Fund (SDF) in the state's workers' compensation program through lump sum settlements to individual injured workers. The financing program was developed to reduce the volatility and cost of workers' compensation insurance coverage, which is mandatory for New York employers, although the size of issuance is well below the levels originally expected. Total statutory authorization for the program, determined by formula, had been estimated at $4.55 billion, and there is no other limit on issuance; however, no significant additional issuance is expected at this time. Bonds are permitted to be issued to fund lump sum payments negotiated with individual claimants eligible for payment from the SDF; contracts to pay insurers who agree to assume liability for, as well as manage and settle, claims in the SDF; and future anticipated liabilities of the SDF. The modest actual issuance amount reflects limited demand for claims settlements.

The SDF, a workers' compensation fund overseen by the state's Workers' Compensation Board, was established in 1916 as a special fund to compensate insurers and self insurers for claims related to injuries suffered by employees who had already suffered from a disability that made further work-related injuries more likely. SDF operations and claims-paying resources are funded by assessments on private insurance carriers who underwrite workers' compensation coverage in the state, the State Insurance Fund, and self-insured employers. Growth in claims to the SDF had driven up workers' compensation costs in New York, and the 2007 Workers' Compensation Reform Act, among other things, closed the SDF program for injuries occurring on or after July 1, 2007. Claims for injuries suffered prior to that date were accepted through July 1, 2010.

The bonds are secured by the assessments on the private insurance carriers, the State Insurance Fund, and self-insured employers. Assessments are billed annually by March 15th at the greater of: (a) 150% of the prior calendar year's SDF disbursements (not including bond-funded settlements), less the fund's prior year end balance and plus 100% of the current year's debt service or (b) 110% of the current year's debt service. Assessments are due 30 days after mailing. With the first interest payment of a year due on June 1, and the principal and second interest payment due Dec. 1, this provides ample time for collection. The Workers' Compensation Board has entered into a financing agreement with DASNY and the state commissioner of taxation and finance that details obligations and procedures for assessment calculation, levy, collection, and disposition.

Workers' compensation insurance is mandatory for nearly all employers in the state, with steep penalties for non-compliance. Enforcement of collections is enhanced by the ability of the Workers' Compensation Board to offset amounts owed by withholding of payments due to insurers or employers. Therefore, collection of assessments has historically been strong.

Bondholders have a priority security pledge on assessments, and the funds pass through a segregated account maintained by the New York State Department of Taxation and Finance. Revenues are transferred to the Workers' Compensation Board for the SDF's operating purposes only after the full year's debt service requirement has been set aside with the trustee. There is no requirement for state appropriation of revenues.

Coverage is very strong, with 2012 assessments equaling more than 30x maximum annual debt service. This reflects the high level of assessments for fund operating disbursements. Assessment levels for fund disbursements are expected to fall over time as liabilities of the closed SDF program are paid off, but the assessment calculation formula ensures 1.1x debt service protection even in the event of zero fund disbursements, extremely unlikely through final maturity of outstanding bonds in 2020.

The assessment payer base is diversified among private insurance carriers (48% of total assessments), the NYSIF (28%), and self-insured entities.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;

--'U.S. State Government Tax-Supported Rating Criteria', dated Aug. 14, 2012.

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

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Fitch Ratings
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Source: Fitch Ratings