Fitch Rates Alaska HFC $161.7MM Home Mtge Revs 2009 C 'AA+' and 2009 D 'AA+/F1+'.

NEW YORK -- Fitch Ratings assigns a rating of 'AA+' to Alaska Housing Finance Corp.'s (AHFC) $80.9 million home mortgage revenue bonds, 2009 series C and a rating of 'AA+/F1+' to $80.9 million 2009 series D bonds. The bonds are expected to close during the week of Aug. 24, 2009 as a negotiated transaction. Additionally, the 'AA+' rating on the outstanding $1,033.5 million 2009 series A-B, 2008 series A-B , 2007 series A-D, 2006 series A-C and 2002 series A bonds is affirmed and the Outlook is Stable.

The current offering is the 14th and 15th series of bonds issued under a master trust indenture dated May 1, 2002, that pledges mortgage revenues, investment earnings, reserves and other funds to the bonds. The bonds' 'AA+' rating reflects the amounts on deposit in funds and accounts including a loan loss fund held under the indenture, the strong credit quality of the expected underlying collateral and related credit enhancements, the adequacy of projected pledged revenues to pay debt service, and strong management capabilities and financial strength of AHFC. Credit concerns include the geographic concentration of the loan portfolio and vulnerability of the state's real estate market to the limited, oil-dependent economy. Additionally, the bonds are general obligations (rated 'AA+') of the corporation. Pending complete review of AHFC's obligations, Fitch will assign an Outlook in the coming months.

The short-term 'F1+' rating assigned to the 2009 series D variable-rate bonds is based on the liquidity support provided by a standby bond purchase agreement (SBPA) issued by Bank of America, N.A. (rated 'A+/F1+' by Fitch). The SBPA provides for payment of the purchase price of tendered bonds and is sized to cover the principal portion of the purchase price and 184 days of interest, at a rate of 15%, based on a year of 360 days. The short-term rating will expire on Aug. 25, 2010, the stated expiration date of the SBPA, unless such date is extended or upon any earlier expiration or termination.

The variable-rate bonds will initially bear interest at the weekly rate. Thereafter, such bonds will be in a weekly interest rate mode but may be converted to a daily, monthly, quarterly, semiannual, indexed or fixed interest rate mode. During the daily and weekly rate modes, bondholders have the option to tender their bonds for purchase on any business day with prior notice. During the monthly, quarterly and semiannual rate modes, bondholders can tender bonds on the effective date of a new interest rate, following specified advance notice. The bonds are subject to mandatory tender: upon conversion of the interest rate mode; upon substitution of the SBPA; and on the fifth day prior to the expiration or earlier termination of the SBPA. Optional and mandatory redemption provisions also apply to the bonds, pursuant to the terms of the documents.

Bond proceeds will be used to purchase loans from an older indenture and new qualified mortgage loans under this program. All loans purchased with tax exempt bonds will be qualified first-time homebuyer loans. The master indenture authorizes the purchase of insured or guaranteed (if necessary, see below) mortgages and mortgage-backed securities (MBS); other loan types are also allowed provided the bonds' rating is maintained. Each loan is required to be a first lien mortgage on a single-family residence within the state, bear a fixed rate of interest, and have a term of 15 to 30 years. Additionally, loans with original loan-to-value ratios (LTVs) of 80% or higher at origination are required to be insured by the Federal Housing Administration (FHA), guaranteed by the U.S. Department of Veterans Affairs (VA) or the U.S. Department of Agriculture through its Rural Development program (RD), or insured by private mortgage insurers (PMI).

The master indenture requires a debt service reserve account (DSRA) and loan loss fund (LLF) be funded at each bond issuance. The DSRA and LLF provide an important layer of credit support, mitigating concerns of potential cash flow disruptions and/or mortgage losses due to future delinquencies and foreclosures. The DSRA requirement is equal to a minimum of 2% of mortgage loans outstanding (excluding loans covered by pool insurance or underlying mortgage certificates) plus bond proceeds available to purchase mortgage loans. The aggregate LLF, equal to 6% of the total bonds outstanding to maintain the underlying rating on the bonds, initially must be in the form of cash and investments and, after the program reaches 103% parity, may also be in the form of MBS and/or qualified mortgage loans.

Approximately 35% of the aggregate loan balances are covered by FHA insurance, 23% is covered by VA guarantees, 11% carry private mortgage insurance, 7% are RD-guaranteed, and 25% cover loans with LTV's of less than 80%, and are therefore not required to have insurance or guarantees. Almost three-quarters (72%) of the mortgages (based on loan balance) are for detached homes, while one-quarter are condominiums and 5% are either two- to four-family homes or planned unit developments. Nearly two-thirds of the mortgages are located in Anchorage.

AHFC's consolidated financial results for the fiscal year ended June 30, 2008 indicate a continued strong financial position and a decrease in earnings. Transfers to the state over the previous five fiscal years total more than $600 million. AHFC's leverage ratios are among the lowest of all housing finance agencies with the Fitch adjusted debt-to-equity ratio at 2.0 times (x) in fiscal 2008, compared to 6.1x in the aggregate for all 51 State Housing Finance Agencies. AHFC's net income before extraordinary items equaled $35.3 million during fiscal 2008, decreasing from $40.5 million in fiscal 2007. Net interest spread was flat at 43.3% in fiscal 2008 compared to 42.3% during fiscal 2007. Net operating margin decreased somewhat to 110.3% in fiscal 2008 from 141.7% in fiscal 2007.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.