Fitch Rates NY EFC's $110MM SRF Revs `AAA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 21, 2001

Fitch has assigned its `AAA' rating to the New York State Environmental Facilities Corp.'s (EFC) approximately $110,000,000 state clean water and drinking water revolving funds revenue bonds, series 2001 B (pooled financing program). The bonds are scheduled to price June 26 through a syndicate led by JP Morgan and Bear, Stearns & Co. Fitch also affirms its 'AAA' rating on the $1.6 billion outstanding pooled financing program state revolving fund (SRF) bonds, which are secured by the EFC's master financing indenture (MFI).

Strongly secured municipal borrower loan repayments are the primary layer of bond security. However, reserves funded from federal and state capitalization grants for New York's clean and drinking water SRFs enable the bonds to withstand unprecedented levels of defaults in an increasingly diverse statewide loan pool, secured primarily by local general obligation pledges. Recently approved authorization to extend loan maturities to 30 years without reducing reserve levels will provide EFC with greater flexibility. Default tolerance should strengthen given the relatively smaller annual debt service requirements and recipient bond repayments will more closely match the life of assets being financed.

All SRF loans have dedicated reserve accounts sized at no less than 33% of outstanding principal and 50% for many clean water SRF (CWSRF) loans, levels that are constantly maintained relative to then-outstanding bond principal. Reserves are released as loans amortize, becoming available first for deficiencies in other SRF recipients' repayments and next for deficiencies in other EFC SRF loan programs. Although the CWSRF and DWSRF programs are accounted for separately, the ability of one program to access funds in the other provides additional credit strength. Bonds perform even assuming at least 39% borrower repayment defaults during any four-year period. The tolerance level equal to 86% in the first four-year period exceeds Fitch's `AAA' stress test benchmark for the combined New York CWSRF and DWSRF loan pools by 3.7:1.

The MFI loan pool's diversification continues to improve. Since January 1998, the number of SRF recipients has expanded from 154 to 276. The percentage of loans to the largest SRF recipient, Nassau County (rated `BBB' by Fitch), has gradually declined to a modest 12% of the loan portfolio. Under Fitch's `AAA' SRF bond rating stress tests, very conservative assumptions are applied to the largest loan recipients rated below `AAA' to test the ability of the SRF to withstand defaults by any one borrower. EFC's structure performs well even under such assumptions. Fitch conservatively estimates that 92% of all outstanding MFI loans are to local governmental units exhibiting investment-grade characteristics.