Fitch Rates Maine Municipal Bond Bank's $50MM Revs 'AAA'

Tools

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AAA' rating to the following Maine Municipal Bond Bank (the bond bank) general resolution bonds:

--$26.1 million 2011 series E tax exempt refunding bonds;

--$23.9 million 2011 series F tax exempt bonds.

The bonds are scheduled to sell via negotiation during the week of Oct. 3, 2011. Proceeds will be used to purchase bonds from local governments throughout the state and to refund certain series of outstanding bonds for debt service savings.

In addition, Fitch has affirmed the following ratings:

--$1.2 billion general tax-exempt fund group bonds at 'AAA'.

The Rating Outlook is Stable.

KEY RATING DRIVERS:

Healthy reserves: The program's reserves allow the bonds to withstand loan defaults that are consistent with what Fitch would expect in an 'AAA' scenario given the size, quality and diversity of the loan portfolio. The program maintains prudent investment practices.

Sound, diversified loan portfolio: The loan portfolio is large and moderately diversified, with low single borrower concentration. Fitch estimates that at least two-thirds of outstanding loan principal exhibit investment-grade characteristics. Also, the program's loan security is strong with approximately 90% of outstanding loan principal backed by general obligation (GO) pledges.

State aid intercept mechanism: The program's underlying loan credit quality is enhanced by the ability of the program to intercept state aid payments of potential delinquent borrowers.

State reserve replenishment: Maine state law provides for but does not legally require the state to replenish the reserve fund if it falls below its minimum specified level.

SECURITY:

The bonds are secured by repayments of municipal bonds issued by local government units, reserves funds and a state moral obligation pledge to replenish the reserve.

CREDIT PROFILE:

The bonds are primarily secured by repayments of municipal bonds issued by 288 local government units. Approximately 65% of the outstanding municipal bonds are backed by GO pledges of school districts, 25% by other local government GOs, 10% by revenue pledges, and less than 1% by hospital revenues. The borrower pool is naturally diversified, with the largest obligor, Regional School Unit #9, accounting for approximately 6% of the total outstanding; the top 10 borrowers account for roughly 30% of the pool.

Structural Characteristics:

A reserve for all parity debt, funded by bond proceeds at 100% of maximum annual debt service (MADS), is available to make up shortfalls that could occur due to any missed local bond debt service payments. As of July 31, 2011, the pledged debt service reserve fund totaled roughly $151 million. In addition, the bank maintains $13 million in supplemental reserves. The combined $164 million in pledged reserves equal 13.5% of principal bonds outstanding.

Additional credit enhancement is provided by a state intercept, whereby in the event a borrower defaults on a local bond payment, the bond bank has the ability to intercept any funds held by the state treasurer that are payable to the borrower. This protection is particularly effective for school districts, which receive a large percentage of their revenues in the form of state aid. In assessing borrower credit quality, Fitch considers the amount by which historical state aid revenue covers a governmental unit's maximum annual debt service on its GO debt. In accordance with Fitch's Rating Guidelines for State Credit Enhancement programs, dated July 29, 2011, if the unit demonstrates minimum historical coverage of 1.25 times (x) to 1.5x, Fitch assesses the municipal obligation's credit quality to be in the 'AA' category; the State's GO rating is 'AA+' with a Stable Outlook. Approximately 60% of the loan portfolio meets this coverage test. Timing delays in the bond bank's receipt of intercepted aid from the state treasurer are mitigated by the program's pledged reserves ($164 million), which are invested primarily in U.S. Treasury and agency securities. In assessing the credit quality of all other borrowers, Fitch uses its own published ratings, or the lowest rating of other agencies if the borrower is not publicly rated by Fitch.

Finally, there is a moral obligation by the state, albeit not a legal requirement, to replenish the debt service reserve if it falls below the minimum specified level. Neither the intercept nor the debt service reserve make-up provision has ever been utilized because the bond bank has never had a borrower default.

Fitch analyzed the default tolerance of the portfolio using a stress test that Fitch also applies to state revolving funds and other municipal loan pools. The stress test considers a portfolio's credit quality, diversification, and single risk concentration. The bond bank's reserves are sufficient to pay debt service even if scheduled repayments on the local bonds fall short by 24.4% for the next four years, and no action is taken by the state to replenish the reserve fund. Withstanding a repayment shortfall this severe is consistent with what Fitch would expect to occur in an 'AAA' stress scenario (18.17%), given the characteristics of the bond bank's portfolio.

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 Municipal Loan Pool Rating Guidelines' (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

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.

CONTACT:

Fitch Ratings
Primary Analyst
Adrienne M. Booker
Senior Director
+1-312-368-5471,
Fitch Inc.,
70 W. Madison St., Chicago, IL 60602
or
Secondary Analyst
Major Parkhurst
Director
+1-512-215-3801
or
Committee Chairperson
Steve Murray
Senior Director
+1-512-215-3729
or
Media Relations
Cindy Stoller
+1-212-908-0526
cindy.stoller@fitchratings.com