Alaska HFC $104.2 Mil Bnds 1999 B Rated `AA' By Fitch IBCA.

NEW YORK--(BUSINESS WIRE)--Nov. 16, 1999--

The Alaska Housing Finance Corporation's (AHFC) $104.2 million state capital project bonds, 1999 series B, are rated `AA' by Fitch IBCA. Additionally, the `AA' rating on the $87 million outstanding state capital project bonds 1999 series A is affirmed. The new bonds are expected to be sold the week of Nov. 22, 1999, as a negotiated transaction through a syndicate led by George K. Baum & Company.

The 1999 series B bonds are the second series of bonds to be sold under the indenture. Proceeds from the bonds will be used to fund various state capital improvement projects primarily for transportation and education purposes. The bonds are not secured by a pledge of specific assets other than the accounts established under the indenture. The bonds are secured solely by the general obligation (GO) debt pledge of the corporation. AHFC's general obligation debt pledge is currently rated `AA' by Fitch IBCA.

The corporation's GO debt rating is based on its strong financial position, favorable operational and financial results, successful management track record, and sufficient liquidity and reserves. Credit concerns remain centered on the geographic concentration of the AHFC's consolidated loan portfolio and the real estate market's vulnerability to the state's oil-dependent economy.

The AHFC's consolidated financial results for the fiscal year ended June 30, 1999 show a decline in earnings while financial position remains strong despite combined transfers, including state appropriations, of more than $370 million over the last four fiscal years. AHFC's leverage ratios are among the lowest of all housing finance agencies. Its debt-to equity ratio remained the same at 1.4 times (x) at June 30, 1999 compared with 1.4x in fiscal 1998 and up slightly from 1.3x in fiscal 1997. AHFC had $2.7 billion of total bonds outstanding, up 2% from fiscal 1998.

Net income was $80 million in fiscal 1999, compared with $96 million in fiscal 1998 and $108 million in fiscal 1997. Net Interest spread (net income divided by total interest income) was 49.2% in fiscal 1999, compared with 49.2% and 50.6% in fiscal years 1998 and 1997, respectively. Net operating margin decreased in fiscal 1999 to 25.5% from 29.2% and 32.9% in each of the two previous years. The corporation's total loan portfolio of more than 25,000 single-family loans continue to perform favorably.

Past concerns relating to the ongoing use of the corporation's surplus funds - to make direct payments to the state, fund capital appropriations for other government entities, and prospectively, pay debt service on these bonds- subsided in the last few years but have resurfaced recently in terms of their potential impact on the corporation's GO rating. These concerns arise from the introduction earlier this year of a bill in the state's senate finance committee (Senate bill No. 113) that could significantly alter the corporation's operational and financial independence. The bill would create greater oversight of the corporation by the state legislature and reduce the corporation's financial flexibility in operating its programs and managing its nonrestrictive assets.

The loss of operational and/or financial flexibility could negatively impact the corporation's GO creditworthiness and, in turn, potentially reduce the credit strength of the bonds that are secured primarily by the corporation's GO pledge. The bill currently remains open in committee and may be considered during the next legislative session without need for reintroduction. Given the preliminary status of the bill, it is unclear at this time what effect, if any, the bill in its ultimate form will have on the corporation's GO creditworthiness or outstanding bond programs. Accordingly, the bill is not a rating consideration at this time, but will remain a noted risk until it becomes clearer as to the bill's ultimate outcome.

In addition to the state capital project bonds, other debt secured by the general obligation pledge as of June 30, 1999 includes: $187 million general housing purpose bonds (rated `AA' by Fitch IBCA); $90 million housing development bonds ($47 million of which is rated AA); $33 million governmental purpose bonds, 1997 series A (rated AA/F1+); and, the corporation's commercial paper program ($106 million) rated F1+ by Fitch IBCA, Inc. Total AHFC state capital project bonds issuance authorization is $224 million.