CHICAGO, May 2, 2007 -- Fitch Ratings assigns an 'AAA' rating to the Colorado Water Resources and Power Development Authority's (the authority) approximately $35.9 million clean water revenue bonds 2007 series A. Bond proceeds will be loaned to four governmental entities for wastewater treatment facility improvements. The bonds are scheduled to price during the week of May 14 via negotiation led by UBS Investment Bank. Fitch also affirms the 'AAA' rating on the authority's approximately $445.7 million of outstanding senior and $189.5 million subordinate state revolving fund (SRF) bonds. The Rating Outlook is Stable.
The 'AAA' rating is based on the high levels of reserves from federal SRF capitalization grants, which generate investment earnings that are used to subsidize local borrower loans, the primary source of security for the bonds. In addition to generating interest earnings, the reserves also provide security to bondholders in the event loan repayments are insufficient to cover debt service on the bonds. The clean water state revolving fund (CWSRF) and the drinking water state revolving fund (DWSRF) are cross-collateralized, meaning surplus revenues from each SRF program are available to cure deficiencies in the other. This increases the diversity of the loan pool and lessens the risk of any one borrower's default eroding the reserve collateralization of the SRFs and threatening bondholder payments.
All loans have separate reserves held in the matching accounts, which are de-allocated as loans amortize so that interest rates on borrower loans are continually subsidized at about 20% below expected market rates. De-allocated funds can be used to cure loan defaults by any borrower within either the CWSRF or DWSRF. After this issue, reserve balances will total approximately $243.5 million, or 36% of outstanding SRF bonds. Given the high degree of overcollateralization, the pool is able to withstand 56% loan repayment defaults over the next four years without interruption to senior or subordinate debt service payments.
The loan pool is diverse, with approximately 75 participants. While the top 10 borrowers account for 41% of the portfolio, concentration of individual borrowers is currently limited to less than 7%. In addition, overall credit quality is sound, with approximately 59% of all outstanding principal exhibiting investment grade characteristics. Underlying loan provisions are strong with the vast majority of all loan principal secured by water and/or wastewater pledges or general obligation pledges.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com.
###
