As part of its routine surveillance effort, Fitch Ratings affirms the 'AAA' rating on the Illinois Finance Authority's (IFA, or the authority) $175.4 million in outstanding revolving fund revenue bonds, series 2002 and 2004. The Rating Outlook is Stable.
The 'AAA' rating reflects projected coverage of 1.9 times (x) debt service from pledged loan repayments - the primary security source - and approximately $87.7 million in reserves which would allow the bonds to perform, even given loan defaults of 78% over the next four years. This default tolerance is well in excess of what Fitch would expect in an 'AAA' stress scenario for a pool of this size, credit quality and security.
The authority leverages moneys on behalf of the Illinois Environmental Protection Agency (IEPA) from the IEPA's federally capitalized clean water state revolving fund (CWSRF) and drinking water state revolving fund (DWSRF) under a master trust agreement. Each bond series issued under the master trust agreement is secured by separate portfolios of SRF loans and may also be secured by a debt service reserve funded from CWSRF and/or DWSRF federal capitalization grants, bond proceeds or other available funds. The program includes a cross-collateralization feature whereby after sufficient funds are deposited into the debt service fund of a particular bond series, released reserves, excess loan repayments, and investment earnings flow into a deficiency fund, which is available to make debt service payments on any clean water or drinking water bonds issued under the master trust agreement.
The reserves for each outstanding series of bonds are funded with bond proceeds and are required to be maintained at 50% of bonds outstanding. The reserves are currently invested in U.S. Treasuries, commercial paper and State and Local Government Series securities (SLGS).
The combined pledged loan pool of 129 borrowers is moderately diversified, except for the largest borrower, Bloomington-Normal Water Reclamation District (the district), which comprises approximately 17% of pledged loan principal; no other borrower represents over 4%. Over the last several years, since the series 2004 bonds were issued, the district expanded its capital projects related to the pledged loans. This has resulted in significantly larger district pledged loan principal amounts totaling approximately $43 million, up from $3 million when the IFA issued its last bonds, series 2004. The 10 largest borrowers account for 44% of the total pledged par outstanding.
The underlying loan security is strong with all loans backed by the borrowers' utility system or general obligation pledges. While there are no delinquent or defaulted borrowers in the pledged portfolio, the IEPA has experienced one loan delinquency in its direct loan pool, which is not pledged to bondholders.
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