Fitch Ratings assigns an 'AA' rating to the
approximately $57 million Maine Health and Higher Educational
Facilities Authority's (the authority) revenue bonds, series 2006B.
Fitch also affirms the 'AA' rating on approximately $1 billion of the
authority's outstanding reserve fund resolution bonds. The series
2006B bonds are scheduled to price during the week of March 20 via
negotiation led by A.G. Edwards Inc. Bond proceeds will be used for
two colleges and one university located in Maine. A portion of the
proceeds will also be used to refund outstanding reserve fund
resolution bonds. The Rating Outlook is Stable.
The 'AA' rating and Stable Outlook reflect the pledged loan pool's strong collateralization levels from loan repayment cash flows, a debt service reserve fund at maximum annual debt service (MADS), a state aid-intercept mechanism, and good loan underwriting standards. Bonds secured by the authority's reserve fund resolution are backed on a parity basis by loans to 65 various hospitals, nursing homes, residential care facilities, continuing care retirement communities, assisted living facilities, community mental health facilities, community health centers, community health and/or social services facilities, and institutions for higher education. Virtually all of Maine's health care and higher educational institutions use the authority as their primary borrowing vehicle because the authority offers participants the lowest cost of capital. The pool has moderate single-borrower concentration with the largest obligor, the Maine Health System, representing 12% of the total outstanding loan portfolio. The top 10 borrowers account for approximately 64% of outstanding loans.
After this issue, approximately 51% of the outstanding loans will be backed by hospital revenues, 33% by revenues from institutions of higher learning, 6% from nursing homes, 6% from residential care/assisted living facilities, and the remaining 4% from other community mental health centers, community clinics, and social service facilities. Most of the borrowers in the pool do not have a public rating. However, Fitch completed an internal assessment of the 10 largest borrowers and estimates that two are in the 'AA' category, four are in the 'A' category, and four are in the 'BBB' category.
A reserve for all parity debt, funded by bond proceeds at 100% of MADS is available to make up for shortfalls that could potentially occur due to any missed repayments. As of this issue, the reserve fund has a market value of $102 million, or 9% of total bond principal outstanding. In addition, the authority collects an administrative fee with each loan repayment and is using the fee to build its own equity within the operating fund that can be used to cure loan defaults.
While not specifically pledged to bondholders, the authority has indicated that the operating fund would be used first in a shortfall situation. When a loan to JHA Properties became nonperforming, the authority required the borrower to sign foreclosure documents and then used the operating fund to cover loan repayments until the loan was restructured. Operating fund balances currently equal approximately $22 million. Management has an internal goal of growing the fund to $25 million and is expected to reach that goal in the next two to four years. Combined, current reserves and operating fund balances total $124 million, or 11% of bond principal outstanding.
In addition to a senior lien on gross revenues and a mortgage on most property and/or financed projects, the loans are secured by a state-aid intercept to cover any potential loan defaults, as well as a moral obligation of the state to replenish the reserve if it falls below its minimum specified level. Neither the intercept nor the reserve makeup has ever been utilized.
Fitch analyzed the default tolerance of the authority's portfolio using a stress test that considers credit quality, single-risk concentration, reserve fund size, debt service requirements, and historical default rates and recovery rates for health care and higher educational facilities. The authority's reserves are sufficient to pay bondholders even if scheduled loan repayments fall short by as much as 31% for four consecutive years, assuming no action is taken by the state to replenish the reserve fund.
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.
The 'AA' rating and Stable Outlook reflect the pledged loan pool's strong collateralization levels from loan repayment cash flows, a debt service reserve fund at maximum annual debt service (MADS), a state aid-intercept mechanism, and good loan underwriting standards. Bonds secured by the authority's reserve fund resolution are backed on a parity basis by loans to 65 various hospitals, nursing homes, residential care facilities, continuing care retirement communities, assisted living facilities, community mental health facilities, community health centers, community health and/or social services facilities, and institutions for higher education. Virtually all of Maine's health care and higher educational institutions use the authority as their primary borrowing vehicle because the authority offers participants the lowest cost of capital. The pool has moderate single-borrower concentration with the largest obligor, the Maine Health System, representing 12% of the total outstanding loan portfolio. The top 10 borrowers account for approximately 64% of outstanding loans.
After this issue, approximately 51% of the outstanding loans will be backed by hospital revenues, 33% by revenues from institutions of higher learning, 6% from nursing homes, 6% from residential care/assisted living facilities, and the remaining 4% from other community mental health centers, community clinics, and social service facilities. Most of the borrowers in the pool do not have a public rating. However, Fitch completed an internal assessment of the 10 largest borrowers and estimates that two are in the 'AA' category, four are in the 'A' category, and four are in the 'BBB' category.
A reserve for all parity debt, funded by bond proceeds at 100% of MADS is available to make up for shortfalls that could potentially occur due to any missed repayments. As of this issue, the reserve fund has a market value of $102 million, or 9% of total bond principal outstanding. In addition, the authority collects an administrative fee with each loan repayment and is using the fee to build its own equity within the operating fund that can be used to cure loan defaults.
While not specifically pledged to bondholders, the authority has indicated that the operating fund would be used first in a shortfall situation. When a loan to JHA Properties became nonperforming, the authority required the borrower to sign foreclosure documents and then used the operating fund to cover loan repayments until the loan was restructured. Operating fund balances currently equal approximately $22 million. Management has an internal goal of growing the fund to $25 million and is expected to reach that goal in the next two to four years. Combined, current reserves and operating fund balances total $124 million, or 11% of bond principal outstanding.
In addition to a senior lien on gross revenues and a mortgage on most property and/or financed projects, the loans are secured by a state-aid intercept to cover any potential loan defaults, as well as a moral obligation of the state to replenish the reserve if it falls below its minimum specified level. Neither the intercept nor the reserve makeup has ever been utilized.
Fitch analyzed the default tolerance of the authority's portfolio using a stress test that considers credit quality, single-risk concentration, reserve fund size, debt service requirements, and historical default rates and recovery rates for health care and higher educational facilities. The authority's reserves are sufficient to pay bondholders even if scheduled loan repayments fall short by as much as 31% for four consecutive years, assuming no action is taken by the state to replenish the reserve fund.
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.