Fitch Ratings has assigned an 'AAA' rating to the New Hampshire Municipal Bond Bank's (NHMBB) approximately $27.95 million, 2009 series D non-guaranteed bonds, issued under the 1978 General Bond Resolution. The 2009D bonds are scheduled to sell via competitive bid on July 14, 2009. NHMBB will loan the proceeds to Governor Wentworth Regional School for capital improvements. In addition, Fitch has affirmed the 'AAA' rating on the NHMBB's $663.8 million outstanding 1978 general bond resolution debt. The Rating Outlook is Stable.
The 'AAA' rating and Stable Outlook on the 1978 resolution bonds are based on significant coverage from multiple layers of security, strong legal provisions, and a diversified general obligation loan portfolio of 164 borrowers from cities, towns, counties, school districts, and other local governments throughout the state. All loans are backed by the borrowers' general obligation pledge. The reserve fund, which is sized at 100% of maximum annual debt service, is funded with bond proceeds and invested in U.S. treasury and agency securities. As of Jan. 31, 2009, pledged reserves totaled $102 million, or 16% of bonds outstanding.
Loan repayments are further backed by an intercept mechanism for any state funds payable to borrowers. The bonds are also supported by a state moral obligation to replenish the debt service reserve fund if it falls below its minimum specified level. Neither the intercept nor the moral obligation has ever been utilized, because no borrower has defaulted on a loan repayment since the bond bank began operations in 1977. Most of New Hampshire's eligible municipalities use the bond bank as their primary borrowing vehicle, because it provides the lowest cost of capital.
The loan portfolio is diverse with the largest borrower, Exeter Region Cooperative School District, comprising 6% of the portfolio. The top 10 borrowers account for 44% of the total outstanding loan balance. Approximately 71% of the loans are to school districts, each of which receives an allocation of the state property tax and many of which also receive 'adequate education grants' from the state. Loan payments are due five days before the bond payment dates. NHMBB could charge borrowers 12% interest if a payment were late.
Fitch analyzed the default tolerance of the NHMBB loan pool using a stress test it also applies to state revolving funds and other municipal loan pools. The stress test considers loan quality, single risk concentration, reserve fund size, and debt service requirements. The bond bank's reserve fund is sufficient to pay debt service even if scheduled loan repayments fall short by as much as 24.6% for four consecutive years and no action is taken by the state to replenish the reserve fund. A loan repayment shortfall this severe is consistent with what Fitch would expect to occur in an 'AAA' stress scenario, given the sound quality of the bond bank's loan pool.
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