Fitch affirms Arkansas Development Finance Authority's SRF Revs
Global rating agency Fitch affirms its 'AAA' rating on the following Arkansas Development Finance Authority's (ADFA) bonds: $57.03 million revolving loan fund capital improvement bonds, series 2011C. The Rating Outlook is Stable. The bonds are secured by loan repayments and other accounts that are expressly pledged under the series and general bond resolutions.
Fitch's cash flow modeling demonstrates that ADFA's state revolving fund (SRF) program can continue to pay bond debt service even with portfolio loan defaults of 100% (the default tolerance rate) over any four-year period. This is in excess of Fitch's 'AAA' liability default hurdle of 54% as produced using Fitch's Portfolio Stress Calculator (PSC), which is derived based on overall pool credit quality as measured by the rating of underlying borrowers, size, loan term, and concentration.
An estimated 60% of pledged borrowers are small, nonrated entities. However, strong underlying loan provisions provide security of loan principal from primarily water and sewer revenue or general obligation pledges. Arkansas Natural Resources Commission (ANRC), which manages the program, maintains sound underwriting and loan monitoring policies reflected in the fact that the program has not experienced a local government default to date.
ADFA issues revolving loan fund revenue bonds to fund ANRC SRF loans to various public entities within the state. Funds are typically disbursed to borrowers to pay eligible CWSRF or DWSRF project costs or to reimburse ADFA for projects previously funded. The combined CWSRF and DWSRF loan pool consists of 78 individual borrowers. Projected cash flow provides a minimum of 2.3x annual debt service coverage on the bonds.