CHICAGO - (Business Wire) Fitch Ratings assigns an 'AAA' rating to the Water Infrastructure Finance Authority of Arizona's (the authority or WIFA) approximately $196 million water quality revenue bonds, series 2009A. In addition, Fitch affirms the 'AAA' rating on the authority's $742.8 million of outstanding parity bonds. The Rating Outlook is Stable. The bonds are expected to sell via negotiation during the week of June 29, 2009. Bond proceeds will be used to fund certain loans made by WIFA to reimburse the authority for monies previously loaned and to refund portions of the authority's outstanding bonds.
The 'AAA' rating on WIFA's state revolving fund (SRF) program reflects the strong security provided by significant overcollateralization due to excess loan repayments and debt service reserves, which secure the bonds. The rating is also based on the strong loan pool credit quality and comprehensive management and fiscal policies. The authority's cash flow structure uses bond proceeds and federal and state SRF capitalization monies to make loans on an ongoing basis.
The loan pool consists of 58 participants. Approximately 68% of all pledged loans, predominately those of the 10 largest borrowers, are estimated to be investment grade quality. Borrower concentration is moderate with the largest borrower (Lake Havasu City) comprising about 19% of pledged loan principal. The pool's 10 largest borrowers account for approximately 72%.
Lake Havasu City, AZ (general obligation debt rated 'A', sewer system revenue obligations rated 'BBB+' with a Stable Outlook by Fitch) is expected to continue to increase in pool concentration over the next several years due to an extensive sewer system capital program. The city's sewer capital debt needs total around $463 million, and much of the funding is expected to be derived from future WIFA loans. Authority officials have indicated that a separate structure may be utilized to fund a portion of the city's needs if the city's concentration levels under the existing indenture pose a credit concern.
The overcollateralization of excess cash flows and reserve funds provide for a maximum loan default tolerance of 57% for the first four-year period and 100% for the middle and last four years, exceeding Fitch's required default rate, for a pool of this size and credit quality. Furthermore, approximately 34% of loans could permanently default through final bond maturity, in 2029, without causing a bond payment interruption.
WIFA is expected to increase its leveraging to meet its large water and wastewater infrastructure needs in the state. However, comprehensive management and fiscal policies provide a solid foundation for sustained strong performance, and Fitch does not believe that additional leveraging will materially affect the cash flows or the pool's default tolerance capability.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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 Ratings
Adrienne M. Booker, 312-368-5471, Chicago
Douglas Offerman, 212-908-0889, New York
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