News Column

Fitch Rates Alaska HFC SCPBs II 2014 Series D 'AA+'; Outlook Stable

August 26, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'AA+' long-term rating to the following Alaska Housing Finance Corporation (AHFC) bonds:

--$78.5 millionState Capital Project bonds (SCPBs) II, 2014 series D.

Additionally, Fitch affirms approximately $1.2 billion in bonds backed by AHFC's general obligation pledge (see full list below).

The Rating Outlook for all the bonds is Stable.

SECURITY

The bonds are general obligations of the AHFC for which its full faith and credit is pledged.

KEY RATING DRIVERS

STRONG ISSUER FINANCIAL POSITION: AHFC consistently has one of the highest financial strength profiles relative to its peers which contribute to its 'AA+' GO rating. Despite net operating losses over the last few years, the sizable asset base allows the corporation to maintain its credit strength.

SUCCESSFUL MANAGEMENT PERSONNEL: AHFC has a well-tenured, strong management staff that continues to demonstrate the financial flexibility to address market challenges.

GEOGRAPHIC CONSTRAINTS: A high portion of AHFC's loan portfolio, which provides security for other bonds which also have GO backing, lies in or around the city of Anchorage (50%).

STRONG UNDERLYING ASSETS: The aggregate underlying mortgage portfolio of the AHFC has performed adequately and has a current delinquency rate of only 2.2% (60+ days) which is lower than state and national averages.

RATING SENSITIVITY

INCREASED STATE TRANSFERS: Under current legislative policies, transfers from AHFC to the state of Alaska are annually capped at the lesser of $103 million or 75% of the change in net assets. Any changes to this policy that could increase AHFC's exposure to potentially higher transfers would put negative pressure on the corporation's GO rating.

CREDIT PROFILE

The 2014 series D bonds are the 8th series of bonds to be issued under the SCPB II Indenture and have a final maturity date of 2029. The bond proceeds are expected to be used to reimburse the corporation for certain governmental expenditures. No mortgage loans are pledged to the bonds, as the GO of the corporation is the sole security for the bonds. Therefore, the 'AA+' rating on the bonds reflects the rating on AHFC's GO debt pledge.

AHFC continues to illustrate its strong financial position despite net losses for the last few years. The corporation has continuously maintained strong leverage and profitability ratios. As of FY 2013, the corporation had a debt-to-equity ratio (DTE) of 1.5x and a net interest spread (NIS) of 28.2%. Both ratios are better than the DTE and NIS five-year medians for all 51 SHFAs which were 4.8x and 23.1%, respectively. The corporation's financial ratios can be attributed to its strong loan portfolio, sizeable equity base, and successful managerial oversight.

A credit concern going forward is the corporation's relationship with the state of Alaska and the state's expected transfers from AHFC. However, a statutory change, effective in fiscal 2003, caps AHFC's annual transfers to the state at the lesser amount of $103 million or 75% of a change in net assets. While this policy mitigates current concerns over transfers to the state, any changes to this policy that could increase AHFC's exposure to potential higher transfers would put negative pressure on the corporation's GO rating.

An additional credit concern centers around the geographic concentration in AHFC's loan portfolio. Anchorage and its suburb, Wasilla/Palmer, account for approximately 50% of the corporation's loan portfolio and should a natural disaster occur in this area it would impact a majority of the loan portfolio, which could put negative pressure on the GO rating. This risk is mitigated by the presence of insurance and AHFC's financial position. Additionally, Alaska's real estate market is vulnerable to the state's cyclical oil-driven economy.

Fitch affirms the 'AA+' rating on the following AHFC bonds:

--$14.6 million (Univ. of Alaska) Governmental Purpose bonds 1997 series A;

--$0.1 millionHousing Development bonds, series 2004 A & B;

--$257.9 million General Housing Purpose bonds, 2005 series A, B, & C;

--$48.3 millionState Capital Project bonds, 2002 series C;

--$88.6 millionState Capital Project bonds, 2006 series A;

--$78 millionState Capital Project bonds, 2007 series A & B;

--$79 millionState Capital Project bonds, 2011 series A;

--$141.3 millionState Capital Project bonds II, 2012 series A & B;

--$136.8 millionState Capital Project bonds II, 2013 series A & B;

--$264.4 millionState Capital Project bonds II 2014 series A, B,& C;

--$186.5 million General Mortgage Revenue bonds II, 2012 series A & B;

--Housing Mortgage Revenue Bank bonds, series 2009 A.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'State Housing Finance Agencies General Obligation Rating Criteria' (Feb. 27, 2014);

--'Revenue-Supported Rating Criteria' (June 16, 2014).

Applicable Criteria and Related Research:

State Housing Finance Agencies General Obligation Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=736598

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=857894

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Ryan J. Pami

Analyst

+1-212-908-0803

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Maura McGuigan

Senior Director

+1-212-908-0591

or

Committee Chairperson

Mario Civico

Senior Director

+1-212-908-0796

or

Media Relations:

Elizabeth Fogerty, +1-212-908-0526 (New York)

elizabeth.fogerty@fitchratings.com


Source: Fitch Ratings


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