Fitch Affirms Maryland Water Quality Financing Admin, Ser. 2005A at 'AAA'; Outlook Stable

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AUSTIN, Texas--(BUSINESS WIRE)-- In the course of routine surveillance, Fitch Ratings affirms the 'AAA' rating on Maryland Water Quality Financing Administration's (the administration, or MWQFA) $28.23 million of outstanding revolving loan fund refunding revenue bonds, series 2005A. The Rating Outlook is Stable.

KEY RATING DRIVERS

--Highly-Rated Loan Pool: Underlying borrower credit quality is strong in comparison to similar programs, with at least 93% of the pool exhibiting investment-grade characteristics. Additional protection is afforded through a state-aid intercept mechanism.

--Strong Financial Structure: The program's overcollateralization (OC) and reserve funds provide enough credit enhancement to withstand loan defaults of up to 54.1% (the default tolerance) of the pool over the next four years. This is in excess of Fitch's 'AAA' stress scenario (7.7%) for a pool of this size and credit quality.

--Pool Concentration: The pool's 10 largest participants represent 86.3% of the portfolio. As the 2005A bond indenture is expected to be used only for refundings, Fitch expects this concentration to increase over time. Increased pool concentration could result in the risk of a single-borrower default causing a debt service payment shortfall. Fitch views this risk as largely mitigated based on the high credit quality of the portfolio combined with the availability of OC and reserves.

--Solid Program Management and Underwriting: MWQFA maintains strong loan monitoring guidelines exhibited by the fact that the program has never experienced a payment default or delinquency.

SECURITY

The bonds are secured by loan repayments payable from local government entities (which are in excess of what is owed in debt service), reserves, and investment earnings.

CREDIT PROFILE

As of September 2010, the pledged loan pool was composed of 33 remaining borrowers. Of those remaining, at least 93% are estimated to exhibit investment-grade credit quality. Baltimore County (general obligation debt rated 'AAA' by Fitch) is the largest borrower, representing 20.4% of the total pledged loan pool.

Additional credit enhancement is provided by a state aid intercept used to cover any potential borrower defaults of general obligation-backed loans. The intercept has never been utilized, as there have been no borrower defaults or delinquencies since the inception of the program. Approximately 84% of all loan principal is secured by general obligation pledges.

While the administration's 2005A bond indenture remains open, it is expected to be used only for refundings. The administration plans to issue all future wastewater and any drinking water revolving loan fund revenue bonds under its 2008 indenture (revolving revenue bonds currently rated 'AAA' by Fitch).

The Maryland Department of the Environment (the department) is responsible for all major environmental programs in Maryland. The department manages several regulatory programs including water pollution control, drinking water control, air and radiation control, hazardous and solid waste management, sediment control, and storm water management.

MWQFA was created in 1988 as a unit of the department to assist local governments in financing wastewater facilities through the use of the revolving loan funds.

STRUCTURAL CHARACTERISTICS

All pledged loan repayments are projected to provide 1.53 times (x)-2.28x coverage through bond maturity in 2015. Additional parity bonds and subordinate obligations may be issued provided that the administration certifies that projected revenues will cover annual debt service by 1.2x. The administration does not anticipate issuing additional bonds.

In the event that loan repayments and investment earnings are insufficient to meet debt service, reserve fund moneys will be used to cover the deficiency. The reserve was funded by bond proceeds and sized at the lesser of maximum annual debt service or 10% of the original bond proceeds. As of Sept. 1, 2011, the fully funded reserve totaled approximately $9.09 million, or 44.5% of total outstanding debt service. The debt service reserve fund is currently invested in guaranteed investment contracts primarily with JP Morgan Chase and Co. (rated 'AA-/F1+' by Fitch).

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

In addition to the sources of information identified in Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from IHS Global Insight.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (June 20, 2011);

--'State Revolving Fund and Leveraged Municipal Loan Pool Rating Criteria' (Aug. 15, 2011);

--'Rating Guidelines for State Credit Enhancement Programs' (July 29, 2011).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

State Revolving Fund and Leveraged Municipal Loan Pool Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648902

Rating Guidelines for State Credit Enhancement Programs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647629

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