Fitch Rates NY EFC $85MM Revolving Fund Bonds `AAA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 26, 2001

Fitch assigns its 'AAA' rating to the New York State Environmental Facilities Corporation's (EFC) $84,600,000 state clean water and drinking water revolving funds revenue bonds, series 2001 A (pooled financing program). The bonds are scheduled to sell the week of Jan. 29 on a negotiated basis through a syndicate led by Salomon Smith Barney. Fitch also affirms its 'AAA' rating on the EFC's $1.4 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. Fitch tests the ability of SRF bonds to withstand loan defaults utilizing a very conservative stress test, measuring the margin by which each 'AAA' rated SRF bond passes the test through the Fitch SRF Strength Index.

Pledged reserves, the investment earnings of which subsidize borrower repayments, will total approximately 48% of outstanding MFI bonds after this issue. These reserves would enable continued bond payments even if more than 99% of loans defaulted during an early four-year period. Fitch's 'AAA' SRF stress test now requires 23.5% four-year default tolerance, given this pool's credit quality and diversification. Thus, the EFC's Strength Index score is 423%, meaning the actual four-year default tolerance exceeds that required in the stress test by 4.23 times (x). Improvements in the Strength Index score reflect increased lending to highly rated municipalities, such as `AAA' rated Westchester County (4.0% of the loan pool), `AA' rated Onondaga County (1.9% of the loan pool), and `AA' rated Suffolk County Water Authority (1.7% of the pool), as well as a decline in the concentration of the largest borrower, Nassau County (rated `BBB' on Rating Watch Negative), to less than 13% total loan portfolio.

SRF loan pool diversification continues at a rapid clip, and average borrower credit quality in the MFI remains high. With this issue, the MFI loan pool expands to more than 260 borrowers statewide. Overall, Fitch estimates that approximately 92% of borrowers exhibit investment-grade characteristics. Underlying loan security provisions are strong with local governments providing general obligation pledges for the EFC loan obligations and public benefit corporations, such as water and sewer authorities, pledging system revenue, typically with a separate debt service reserve fund.

EFC's reserve investments exceed Fitch's requirements for 'AAA' rated SRF bonds. This is important since reserve earnings subsidize borrower repayments and reserve principal provides a backup source of security for bondholders should borrowers fail to meet their obligations. Nearly all MFI reserves are invested in collateralized investment contracts that can be replaced in certain instances if the investment providers are downgraded. Fitch typically requires that the providers have the highest short-term rating in order for reserves to be given credit for full and timely payment in the 'AAA' stress test. As of this issue, 98% of invested funds are placed with or guaranteed by 'F1+' and/or 'AAA' rated institutions.