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Fitch Rates Maine Municipal Bond Bank $116.8MM Revs 'AAA'.


CHICAGO -- Fitch Ratings assigns an 'AAA' rating to the Maine Municipal Bond Bank's (bond bank) $57.1 million 2007 series D and E bonds. The bonds are expected to sell during the week of September 24 via negotiation led by UBS Investment Bank. In addition, Fitch affirms the ratings on approximately $969 million of the bond bank's outstanding general tax-exempt fund group bonds at 'AAA'. The Outlook is Stable.

The bond bank's general tax-exempt fund group, which first issued bonds under a general resolution adopted in 1973 and under which the 2007 series D & E bonds are being sold, issues tax-exempt bonds that fund the purchase of bonds issued by local government units. The 'AAA' rating is based on the high credit quality and diversification of the pledged local bond portfolio and various structural enhancements, i.e. a state aid intercept to assure local bond repayments, a reserve funded at maximum annual debt service (MADS) and backed by a moral obligation make-up provision, and a sizable supplemental reserve.

The bonds are primarily secured by repayments of municipal bonds issued by more than 300 local government units. Approximately 58% of the outstanding bonds are backed by general obligation pledges of school districts, 31% by other local government general obligations, 10% by revenue pledges, and approximately 1% by hospital revenues. The borrower pool is naturally diversified, with the largest obligor, the Maine School Administrative District #3, accounting for 4.3% of the total outstanding bonds, and the top ten borrowers accounting for only 27% of the total outstanding bonds in the portfolio.

A reserve for all parity debt, funded by bond proceeds at 100% of MADS, is available to make up shortfalls that could potentially occur due to any missed local bond debt service payments. As of June 30, 2007, the debt service reserve fund totaled $118.4 million. In addition, the bond bank maintains supplemental reserves totaling $20.5 million that may also be used if a deficiency occurs. The combined $138.9 million in reserves equals approximately 13.5% of principal on bonds outstanding, including the Series 2007 D & E bonds.

Additional credit enhancement is provided by a state intercept, whereby in the event a borrower defaults on a local bond payment, the bond bank has the ability to intercept any funds held by the state treasurer that are payable to the borrower. This protection is particularly effective for school districts, which receive a large percentage of their revenues in the form of state aid. Finally, there is a moral obligation, albeit not a legal requirement, by the state to replenish the debt service reserve if it falls below its minimum specified level. Neither the intercept nor the debt service reserve make-up provision has ever been utilized because the bond bank has never had a borrower default.

Fitch analyzed the default tolerance of the general tax-exempt fund group's portfolio using a stress test it also applies to state revolving funds and other municipal loan pools. The stress test considers a portfolio's credit quality, diversification, and single risk concentration. The bond bank's reserves are sufficient to pay bonds even if scheduled repayments on the local bonds fall short by 31% for the next four years, and no action is taken by the state to replenish the reserve fund. A repayment shortfall this severe is in excess of what Fitch would expect to occur in an 'AAA' stress scenario, given the characteristics of the bond bank's portfolio.

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.
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Publication:Business Wire
Date:Sep 17, 2007
Words:638
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