Correction: Fitch Rates Arizona SRF Bonds 'AAA'.

Business Editors

AUSTIN, Texas--(BUSINESS WIRE)--March 3, 2004

(Subsequent to the original press release issued 3/01, the bonds are now scheduled to sell as two separate series instead of one. The water quality revenue bonds, series 2004 will provide new money proceeds, while proceeds from the water quality revenue refunding bonds, series 2004 will be used to refund a portion of the authority's outstanding bonds.)

Fitch Ratings-Austin-March 1, 2004: Fitch Ratings assigns a 'AAA' rating to the Water Infrastructure Finance Authority of Arizona's (WIFA, or the authority) approximately $182.7 million water quality revenue bonds, series 2004A and approximately $89.8 million of water quality revenue refunding bonds, series 2004A. Fitch also affirms the 'AAA' rating on the authority's $234.1 million of outstanding parity bonds. The Rating Outlook is Stable.

The bonds are scheduled to sell via negotiations the week of March 15 through a syndicate led by RBC Dain Rauscher Inc. Bond proceeds will be used to fund certain loans made by WIFA for water quality projects, reimburse the authority for monies previously loaned, refund a portion of WIFA's outstanding revenue bonds, make a deposit to the reserve account, and pay costs of issuance.

The 'AAA' rating reflects WIFA's loan pool credit quality and increased diversity, strong security provisions, and comprehensive management and fiscal policies. Like other cash flow state revolving funds (SRFs), such as those rated 'AAA' by Fitch in New Jersey and Texas, bond proceeds and federal and state SRF capitalization moneys are used to make loans on an ongoing basis. All of these loans, as well as investment earnings, may be pledged to bondholders, providing excess cash flow coverage.

With this issue the combined clean water SRF and drinking water SRF pledged loan pool expands to 51 participants. Approximately 87% of all pledged loans, predominantly those of the ten largest borrowers, are estimated to be of investment-grade quality by Fitch. Concentration among individual borrowers is less than other SRFs, with the largest two borrowers (City of Yuma, AZ and Pima County, AZ) each comprising about 18% of outstanding pledged loans.

Lake Havasu City, AZ (the city, general obligation debt rated 'A' and sewer system revenue obligations rated 'BBB+' by Fitch) currently comprises 4% of the portfolio, but is expected to increase rapidly in concentration over the next several years due to an extensive sewer system capital program. The city's sewer capital debt needs total around $400 million, and much of the funding is expected to be derived from future WIFA loans. The city's existing loans through the authority are insured, providing additional security to bondholders. Fitch expects that a sizeable portion of future loans to the city will be insured as well. Authority officials have indicated that a separate structure may be utilized to fund a portion of the city's needs if the city's concentration levels under the existing indenture pose a credit concern.

The overcollateralization of excess cash flows and reserve funds provides for a minimum default tolerance rate of 28% in any given four-year period. Based on the pool's default tolerance capacity and credit quality, WIFA's bonds pass Fitch's stress test by a margin of 1.3:1, leading to a strength index score of 135%.

Having experienced population growth of 40% from 1990-2000, more than three times the national average, Arizona is the fastest growing state to leverage its SRF. Going forward, WIFA is expected to increase its leveraging to meet the large water and wastewater infrastructure needs in the state arising from this growth. However, comprehensive management and fiscal policies provide a solid foundation for continued strong performance, and Fitch does not believe that additional leveraging will materially impact the cash flows or the pool's default tolerance capability.