Fitch Rates New Mexico Finance Auth Sub Lien Rev Bonds 'A+'.

CHICAGO -- Fitch Ratings assigns its 'A+' rating to the New Mexico Finance Authority's (NMFA, or the authority) subordinate-lien public project revolving fund refunding revenue bonds as follows:

-- $47.7 million, series 2005C;

-- $7.1 million taxable, series 2005D.

The bonds are expected to price on Feb. 28 via negotiation led by Piper Jaffray & Co. Fitch also affirms the 'AA' rating on the authority's approximately $418 million outstanding senior lien public project revolving fund revenue bonds. The Rating Outlook is Stable.

With this issue, NMFA will effectively replace its existing subordinate lien indenture by refunding approximately $49 million in outstanding subordinate lien court facilities fee revenue bonds, which are rated 'AA-' by Fitch. The original subordinate lien indenture was created in 2001 to expand the authority's lending capacity of the public project revolving fund (PPRF) without affecting the credit quality of the senior lien program.

The new subordinate lien indenture, which is structured similarly to its predecessor, authorizes NMFA to issue variable rate debt and interest rate swaps. The authority anticipates that the added flexibility will help meet the needs of a broader scope of borrowers, particularly special assessment districts, which require prepayment flexibility. Given the potential risk exposure of variable rate debt and interest rate swaps, the current bonds are not rated as high as those under the original subordinate lien indenture.

The 'A+' rating on the series 2005C and 2005D bonds is based on significant coverage from multiple layers of security, the NMFA's sound management of PPRF loan programs, and adequate protection against excessive leveraging. While primary bond security is derived from various court facilities fees collected throughout New Mexico, significant enhancement is provided by a subordinate lien on moneys released from the PPRF program.

The PPRF is a major capital source for municipalities statewide. The senior lien bonds are secured by municipal and state agency loan repayments, as well as NMFA's 75% share of New Mexico governmental gross receipts tax (GGRT) revenues. The GGRT, a 5% tax on gross receipts of every governmental agency and institution in New Mexico, except school districts and healthcare facilities, has proven to be a reliable source of security for existing revolving fund bondholders.

Court facilities fees, comprising traffic tickets, criminal court fees, civil docket fees, and various other fees, totaled approximately $5.5 million in fiscal 2004. Assuming no growth in pledged revenue, court facilities fees alone cover maximum annual debt service (MADS) approximately 1.2 times (x). Including the additional security provided by moneys released from the senior lien PPRF, MADS coverage significantly increases to 4.8x. Coverage levels allow the bonds to perform under stress tests, assuming considerable court facilities loan repayment disruption and significant declines in senior lien PPRF releases. For example, if there was a 31% reduction in senior lien releases and 19% reduction in the court facilities fee loan repayments for the life of the bonds, the remaining revenue would be sufficient to pay annual bond debt service. These stress tests do not assume the use of the debt service reserves required under the subordinate lien indenture.

The additional bonds test for future subordinate lien bonds requires that pledged loan revenue and senior lien PPRF releases provide coverage of aggregate annual debt service in excess of 1.0x. The additional bonds test conservatively discounts projected pledged loan revenues based on the credit quality of the loans, which protects bondholders from excessive program leveraging.