As part of its continuous surveillance effort, Fitch Ratings affirms the 'AAA' ratings on the Massachusetts Water Pollution Abatement Trust's (South Essex Sewerage District loan program) $7.25 million in outstanding revenue bonds, series 1994A and 1996A. The Rating Outlook is Stable.
Fitch upgraded the MWPAT SESD Loan Program bonds to 'AAA from 'AA' on Aug. 10, 2004. In the course of this most recent review, it was discovered that the series 1994A bonds were not explicitly listed in the Rating Action Commentary associated with the 2004 upgrade. The full rating history for the 1994A bonds has been corrected and is now available on Fitch's web site.
The 'AAA' ratings for the Massachusetts Water Pollution Abatement Trust (MWPAT) South Essex Sewerage District (SESD) program bonds reflect substantial debt service reserves, currently totaling approximately $34.4 million, or 470% of outstanding bond principal; this does not include pledged reserves released to the deficiency fund established under the MWPAT's state-wide pool program (rated 'AAA' with a Stable Outlook by Fitch), which are also available for payment of debt service. The reserves are sufficient for the MWPAT SESD bonds to perform, even assuming 100% permanent loan defaults over the life of the bonds
MWPAT SESD's program reserves are invested primarily in investment agreements, with providers rated at least in the second highest rated category and/or fully collateralized by direct U.S. Treasury or Agency securities with third-party custodians. The sustained credit quality of the reserve investments is important to maintaining the current 'AAA' ratings.
The MWPAT issues bonds to fund loans for its clean water and drinking water state revolving funds (SRF). The Trust has issued bonds under indentures for four separate programs, one each for the SESD, Massachusetts Water Resources Authority, the City of New Bedford, and the MWPAT's larger state-wide pool program. The outstanding bonds were issued under SESD's standalone indenture to prevent borrower concentration in the state-wide pool program due to significant capital requirements associated with SESD.
The primary security for the bonds is loan repayments from SESD. In addition, the Trust pays a portion of bond debt service with amounts received by the Commonwealth; these Commonwealth Assistance Payments result in a net maximum 2% interest rate to SESD. The bonds are further secured by debt service reserves that are maintained at a minimum of 50% of outstanding bond principal or maximum annual loan repayments, whichever is greater. Reserves dedicated to the MWPAT SESD program bonds substantially exceed these levels because some of the MWPAT SESD bonds have been escrowed to maturity through refunding bonds issued through the MWPAT state-wide pool program. As the bonds amortize, a portion of the reserves are released to the deficiency fund and are available to cover any shortfalls within any of the trust's standalone pool programs as well as MWPAT's state-wide pool program on a parity basis.
Additional information is available at 'www.fitchratings.com'.
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Fitch Ratings
Adrienne M. Booker, 312-368-5471, Chicago
David
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or
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Email: cindy.stoller@fitchratings.com