Fitch af­firms Arkansas De­vel­op­ment Fi­nance Author­ity's SRF Revs

The Pak Banker - - Front Page -

CHICAGO

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.

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