CHICAGO, Nov 12, 2010 (BUSINESS WIRE) -- Fitch Ratings assigns the following rating to the Ohio Water Development Authority's (OWDA) water development refunding revenue bonds, community assistance program (CAP): --$30,180,000 series 2010C 'AA+'.
The bonds are expected to price via negotiation during the week of Nov. 22, 2010.
Proceeds of the bonds will be used to refund a portion of outstanding program bonds for debt service savings.
In addition, Fitch affirms the following ratings: --$103 million in outstanding water development CAP revenue bonds at 'AA+'.
The Rating Outlook is Stable.
RATING RATIONALE: --The 'AA+' rating reflects overcollateralization from loan repayments, the primary security source, in addition to pledged reserves that allow the bonds to perform even given loan defaults of up to 44.5% over the next four years; this performance is in excess of what Fitch would expect in an 'AA' stress scenario for a pool of this size and credit quality.
--The rating also reflects a seasoned, moderately diversified CAP loan portfolio with a strong repayment history and OWDA's strong management and loan monitoring policies.
--Since inception of the CAP in 1983, the loan pool has expanded and diversified to 165 local government borrowers, most of which are non-rated municipalities.
--The rating also considers the nature of the program which functions primarily to service communities for whom it would be an economic hardship to finance projects at market interest rates.
--The program maintains prudent investment practices.
KEY RATING DRIVERS: --Credit quality of the bonds is linked to repayment performance on the program's loan portfolio and credit quality of investments in the reserve funds.
--Balancing of future leveraging with program resources is necessary to maintain tolerance to potential loan defaults.
SECURITY: The CAP bonds (and future parity bonds) are secured by borrower loan repayments, a debt service reserve fund, surplus fund, construction fund, and interest earnings. In addition, OWDA covenants to use available moneys in the unrestricted account of the cross-collateralization fund (CCF) to cure program deficiencies, on a subordinate basis.
CREDIT SUMMARY: With the issuance of the series 2010C refunding bonds, total pledged loan repayments provide program debt service coverage ranging from 1.05 times (x) in 2012 to 1.90x in the later years. The program also maintains a debt service reserve fund at maximum annual debt service on all parity bonds. The authority's pledged resources allow the CAP to withstand loan defaults of 44.5% over the next four years without defaulting on the bonds. This default tolerance, which excludes amounts available from unrestricted CCF releases, is in excess of what Fitch would expect (37.9%) in an 'AA' stress scenario for a pool of this size and credit quality.
Loan repayments exceeding the amounts needed to pay debt service and to fund the debt service reserve are deposited in the CAP surplus fund for two years.
Surplus fund deposits are first available for debt service during that period.
After two years, proceeds may be used by the authority for any lawful purpose.
However, OWDA generally deposits its community assistance surpluses back into the pledged construction fund.
The security enhancement provided by a subordinate lien on surplus revenues released from the authority's unrestricted account of the CCF was established under OWDA's 1995 fresh water program. By the end of 2010, OWDA expects to release approximately $25 million from the CCF. To the extent that moneys from this account are not needed to cure deficiencies in any senior or parity fresh water programs, the CCF is available to make up deficiencies in the CAP debt service and debt service reserve funds.
The CAP loan portfolio now has 165 borrowers, up from 132 borrowers in 2007.
Fitch expects the CAP will remain moderately diversified given constant local government demand for low-interest water and wastewater project financing.
Ottawa County, the largest borrower, represents 9.4% of the pledged loan pool, down from 34.4% in 1997. Fitch does not provide an opinion on any of the borrowers' water and sewer debt obligations. Nevertheless, the loan portfolio is well seasoned, with a strong repayment history. Since program inception in 1983, only one borrower (City of Sparta, which represented less than 1% of the pledged portfolio) has defaulted on a loan payment. Sparta's loan has since been depledged from the CAP portfolio as allowed under the trust agreement.
OWDA's established loan underwriting criteria and solid portfolio monitoring efforts also contribute to the strong loan performance. The authority's loan underwriting criteria reflects the nature of the program, which functions primarily to service 'hardship' communities; this loan pool type is not typically reflected in revolving municipal loan programs rated by Fitch. Under the criteria, borrowers must prove that conventional financing for public water supply projects would result in economic hardship to the community. In addition, the projected annual cost per residential utility system user must be over the Ohio EPA affordability criteria (1.1% of Median Household Income [MHI] for drinking water, 1.5% of MHI for wastewater, or 2.6% MHI for combined system user charges). Despite these requirements, borrowers must demonstrate sum sufficiency on system utility rates, and certain types of projects require approval by the Ohio Environmental Protection Agency. OWDA monitors borrowers annually for potential fiscal challenges that could affect loan repayments.
OWDA maintains conservative investment practices and may only invest program funds in U.S. government obligations and certificates and certain repurchase agreements that are fully collateralized by U.S. government obligations marked to market daily. Currently, CAP funds are invested in U.S. Treasury and Agency and money market securities.
Additional information is available at 'www.fitchratings.com' Applicable Criteria and Related Research: --'Revenue-Supported Rating Criteria' (Oct. 8, 2010); --'State Revolving Fund and Municipal Loan Pool Rating Guidelines' (April 28, 2008).
Applicable Criteria and Related Research: State Revolving Fund and Municipal Loan Pool Rating Guidelines http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=384150 Revenue-Supported Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
SOURCE: Fitch Ratings CONTACT: Fitch Ratings Primary Analyst Adrienne M. Booker Senior Director +1-312-368-5471 Fitch, Inc. 70 W. Madison Street Chicago, IL 60602 or Secondary Analyst Julie Seebach Associate Director +1-512-215-3740 or Committee Chairperson Steve Murray Senior Director +1-512-215-3729 or Media Relations Cindy Stoller +1-212-908-0526 firstname.lastname@example.org Copyright Business Wire 2010 -0- KEYWORD: United States
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