The bonds are expected to price via negotiation the week of
In addition, Fitch affirms the following:
The Rating Outlook is Stable.
The bonds are secured by pledged loan repayments, amounts held in funds established under the respective bond indentures, interest earnings and certain excess amounts available under the master trust indenture.
KEY RATING DRIVERS
SOUND FINANCIAL STRUCTURE: Fitch's cash flow modeling demonstrates that the program can continue to pay bond debt service even with loan defaults in excess of Fitch's 'AAA' liability default hurdle, as produced using Fitch's Portfolio Stress Calculator (PSC).
LARGELY UNRATED POOL: Approximately 70% of OWRB's loan portfolio consists of unrated entities, which Fitch conservatively assumes to be of speculative grade credit quality in its analysis. In accordance with its criteria, Fitch has obtained a credit assessment on a minimum of 33% of the loan pool.
SOLID LOAN SECURITY: Utility system revenues secure all of the pool's borrowers. Such security pledges are considered among the strongest pledge types by Fitch.
MODERATE POOL DIVERSITY: OWRB's borrower pool, with about 155 borrowers, is of average size. The largest borrower, the
EXPERIENCED MANAGEMENT TEAM: The board's management team is experienced and maintains sound underwriting and loan monitoring procedures, as evidenced by the fact that OWRB SRF program has never experienced a pledged loan default.
REDUCTION IN MODELED STRESS CUSHION: Significant deterioration in aggregate borrower credit quality, increased pool concentration, or increased bond leveraging resulting in the program's inability to pass Fitch's liability default 'AAA' hurdle would put downward pressure on the rating. The Stable Outlook reflects Fitch's view that these events are not likely to occur.
OWRB was established in 1957 as an agency and department of the state of
FINANCIAL STRUCTURE EXHIBITS STRONG DEFAULT TOLERANCE
Fitch calculates the program's asset strength ratio (PASR), which includes total scheduled loan repayments plus any reserve balances and account earnings divided by total scheduled bond debt service, to be strong at approximately 1.9x versus Fitch's 'AAA' median of 1.6x. Additionally, projected minimum annual debt service (ADS) coverage excluding reserves is good at 1.3x versus Fitch's 'AAA' median of 1.2x.
Cash flow modeling demonstrates that because of this strong coverage, the program can continue to pay bond debt service even with hypothetical loan defaults of 100% over any four-year period (Fitch criteria applies a 90% recovery in the cash flow model when determining default tolerance). This is in excess of Fitch's 'AAA' liability stress hurdle 60% as produced by the PSC. The liability stress hurdle is calculated based on overall pool credit quality as measured by the rating of underlying borrowers, size, loan term, and concentration.
OVERCOLLATERALIZATION AND RESERVES PROVIDE CREDIT STRENGTH
The board structures its program using a hybrid (cash flow/reserve fund) model, with each series of bonds issued under the master trust agreement (MTA) secured primarily by separate portfolios of drinking water and clean water SRF (DWSRF and CWSRF, respectively) loans and separate reserve funds. However, released reserves, excess loan repayments, and investment earnings are deposited into the deficiency fund, which may be used to pay debt service requirements on any series of SRF bonds issued under the MTA. The program is also enhanced by a cross-collateralization feature of the separate CWSRF and DWSRF programs, which allows for shortfalls in one program to be covered by surpluses in the other. These features allow Fitch to look at the separate programs as one in its modeling analyses.
LOAN POOL MODERATELY DIVERSIFIED, LARGELY UNRATED
The combined DWSRF and CWSRF pledged loan pool is composed of 155 borrowers. TMUA (not rated by Fitch) is the largest participant, representing about 11% of the pool. the top 10 borrowers represent approximately 52% of the loan pool, which is consistent with Fitch's 'AAA' median. Fitch views the loan pool as having moderate diversity in comparison to other similar 'AAA' programs.
The 'AAA' liability hurdle is high at 60% versus an 'AAA' median of 33%, as a result of the largely unrated loan pool. However, the strong cash flow coverage and solid loan security pledges somewhat mitigate the unrated pool risk, as all loans are backed by net water/sewer system revenues.
EXPERIENCED PROGRAM MANAGEMENT AND SOUND UNDERWRITING
The board's formal underwriting procedures consist of approval of clean water or drinking water project feasibility, review of loan credit, and application and approval by OWRB. A borrower must enter into a loan agreement with OWRB and enact an ordinance or resolution that provides for loan repayments through issuance of a local note. Borrower loan agreements typically must demonstrate 1.25x ADS coverage on outstanding loans, including any additional debt. Loans to smaller systems are secured further by a mortgage of the local borrower's system facilities.
Provisions in the loan agreements allow OWRB to consistently monitor borrowers, which are required to submit monthly financial reports, as well as annual audited financial statements. Borrowers must maintain rates and charges sufficient to cover operating and maintenance expenses, and net revenue available for loan debt service must be maintained at 1.25x ADS on all parity and senior debt obligations. In the event of a loan default, OWRB has the right to directly impose, enforce, and collect charges on users of the defaulting system. OWRB has never experienced a default by any borrower within its pledged loan programs.
OWRB is the sole administrator of the CWSRF, while administration of the DWSRF is shared between the board and the state's
Additional information is available at 'www.fitchratings.com'.
--'State Revolving Fund and Leveraged Municipal Loan Pool Criteria' (
--'State Revolving Fund and
--'Revenue-Supported Rating Criteria' (
Revenue-Supported Rating Criteria
Source: Fitch Ratings
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