Fitch IBCA Upgrades Oregon Bond Bank To `AA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 10, 2000

Fitch IBCA upgrades its underlying rating to `AA' from `AA-` on the Oregon Bond Bank's $81 million outstanding Oregon Economic and Community Development Department governmental purpose, special public works fund, and water fund revenue bonds and assigns the `AA` underlying rating to the $47,290,000 2000 series A issuance, which is scheduled to price competitively on March 29. `AAA' rated insurance by MBIA is expected.

The new issue is the largest in the history of Oregon's statewide pooled loan infrastructure financing program, and it funds loans that both diversify and strengthen loan pool credit quality, contributing to the upgrade. The upgrade is also based on the results of Fitch IBCA's municipal default study, which found a much lower than previously believed default rate on debt in the water, sewer, and tax-supported sectors, such as the loans funded by the bond bank.

The `AA' rating reflects the pledged loan pool's increasing statewide diversification, strong collateralization levels from loan repayment cash flows and a reserve fund, and sound borrower credit quality. Bonds secured by repayments from the loan pool perform even in very severe stress scenarios in which defaults exceed historical levels by 350 times (x), a level more than commensurate with an `AA' rating.

Somewhat offsetting these strengths are the current and potential effects of state tax limitation initiatives on some borrowers' credit health and intense capital needs in many areas, which could be financed with increased leveraging of the bond bank, if officials so chose.

With an expected $45 million capitalization allocation from lottery bond proceeds in 1999-2001, the bond bank is somewhat better equipped now, along with multiple other grant and loan sources at the state and federal level, to deal with the state's burgeoning local infrastructure needs. The most recent statewide survey indicated a $1 billion shortfall of resources versus infrastructure needs in the next four years, a fact which will necessitate continued leveraging of bond bank capital and diversification of the loan pool.

The new issue finances 15 loans, expanding the overall pledged loan pool, including non-bond funded loans, to 96 borrowers. Well over 90% of pledged loan repayments are estimated to exhibit investment-grade credit quality with at least a general fund pledge required by the bank for all borrowers and minimum 1.1x revenue bond coverage, as most loans fund water and wastewater treatment improvements. Metro, the Portland area service provider with an `A+' general revenue bond rating by Fitch IBCA, becomes the largest borrower with this issue, as a $16 million loan for a new exposition facility building takes its share of the pool to 13% of the total pledged loan pool. All pledged loan repayments provide 1.2x debt service coverage, consistent with current bond bank practice, although additional bonds tests allow leveraging down to the 1.1x coverage level.

Fitch IBCA views the recent reorganization of Oregon's economic and community development department, the lead bond bank agency, as a positive credit consideration. Reportedly, the reorganization is geared toward increasing cross-agency coordination, enhancing the ability of officials to leverage a greater variety of intergovernmental funding sources for local needs and to target grant and non-bond funding to distressed communities, including rural and timber-dependent towns. This coordination maximizes the ability of the state to use the leveraged bond bank loan pool to finance stronger credits, and this should further strengthen already good loan underwriting standards.