Fitch Rates Buffalo Fiscal Stability Authority (New York) $60MM BANs 'F1+'.

NEW YORK -- Fitch Ratings assigns its 'F1+' short-term rating to The Buffalo Fiscal Stability Authority's (BFSA or the authority) $60 million bond anticipation notes (BANs), series 2006A-1. The BANs are scheduled to price Sept. 6 via negotiation with Lehman Brothers. Dated the date of delivery, $30 million in BANs mature May 15, 2007 and the remaining $30 million mature Aug. 14, 2007. The BANs are payable from proceeds of senior revenue bonds or renewal notes of the BFSA. Proceeds will be used to support the cash flow operations of the City of Buffalo during fiscal 2007. At this time, Fitch affirms the 'AA-' rating on the BFSA's approximately $125 million outstanding sales tax and state aid secured bonds. The Rating Outlook on the long-term bonds is Stable.

The 'F1+' short-term rating is reflective of the BFSA's high level of market access consistent with the 'AA-' long-term rating. The 'AA-' rating incorporates elements of both municipal and structured finance credit analysis. BFSA is a bankruptcy-remote issuer formed to provide a funding vehicle for the city, as well as financial control and oversight functions. The bond structure created by the BFSA Act grants a first-perfected security interest in City of Buffalo (the city) and Buffalo School District sales tax revenues as well as state aid to the city, providing strong debt service coverage even under stress tests. Statutory and contractual covenants prohibit actions by New York State (the state), Erie County (the county), or the city that impair bondholder rights. The primary credit concern is the right of the state, county, or city to alter the tax structure; however, this risk is somewhat mitigated by non-impairment covenants of all three entities. Furthermore, despite the city's weak economic indicators, including high unemployment levels, declining population, and stagnant tax base expansion, pledged revenue growth has been steady, providing strong bondholder protections.

BFSA's bonds are secured by the city and school district's portion of the local sales tax, and state aid of the city, which are BFSA's primary assets. The local sales tax is currently levied at a rate of 4.75%-3% for distribution and 1.75% for county purposes. Beginning in 2007 the city will receive an additional $5.9 million of sales tax revenue annually from the county purpose portion of the sales tax; this sharing agreement is in effect through Feb. 29, 2008 when 1% of the county's 1.75% portion is set to expire. The county covenants to maintain the local sales tax rate of 3% through June 13, 2037, when the authority will be disbanded. In addition, any change in the local tax law cannot result in coverage below 2 times (x) maximum annual debt service (MADS) on BFSA bonds.

Stress tests show that pledged revenues provide very strong coverage. Coverage of estimated MADS for the assumed total debt program of $300 million from 2005 receipts is 5.8x, and coverage from sales tax receipts alone is a solid 2.6x. Total BFSA revenues would have to decline 10.79% annually through 2028 to hit the 2x coverage minimum. Given the steady average annual growth of sales tax and state aid revenues since 1990 of 2.6% and 5.2%, respectively, coverage is expected to remain strong, despite the below-average economic base. The additional bonds test for senior debt is strong, requiring 3x coverage of MADS from sales tax revenues alone. The indenture limits total senior bonds outstanding to $300 million, and the BFSA act limits cash flow notes outstanding to $145 million.

BAN proceeds will provide cash flow financing for the city. Although the BANs are secured by the proceeds of senior revenue bonds or renewal notes of the BFSA, the BFSA plans to retire the notes with state aid receipts to be deposited with the trustee at least 45 days prior to the May 15 and August 14 BAN maturity dates. State aid receipts are budgeted at $60.9 and $52.8 million in March and June 2007 respectively. The Authority covenants that should state aid receipts 45 days prior to maturity be insufficient to pay the principal and interest on the BANs, senior lien takeout obligations will be issued to retire the BANs. BFSA has further covenanted that it will not issue another series of senior bonds should such issuance preclude the issuance of takeout obligations under the indenture senior bond debt limit of $300 million.

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