Fitch Upgr Ohio Water Develop Auth's Community Assist Pgm to 'AA'.

Business Editors

CHICAGO--(BUSINESS WIRE)--Nov. 13, 2003

Fitch Ratings assigns a 'AA' rating to the Ohio Water Development Authority's (OWDA) $54 million water development revenue bonds, community assistance series 2003. In addition, OWDA's outstanding $45.7 million in community assistance program (CAP) bonds are upgraded to 'AA' from 'A+'. The Rating Outlook is Stable.

The bonds are scheduled to sell on a negotiated basis on Nov. 19 via a syndicate led by A.G. Edwards & Sons, Inc. Bond proceeds will be used to leverage low-interest CAP loans to local government borrowers in order to provide funding for water, wastewater, and sewerage facility projects.

The underlying rating upgrade to 'AA' from 'A+' is due primarily to increased diversification and expansion of the Authority's CAP loan pool, and excellent performance of the underlying loans, 70.4% of which are to non-rated municipalities. Strong management practices are also a contributing factor. Since inception of the CAP in 1983, the loan pool has expanded to over 100 local government borrowers.

Ottawa County, the largest borrower and one of the strongest credits in the portfolio, represents 17.6% of the pledged loan pool, down from 34.4% in 1997. Although the majority of the loans under the CAP are of lower credit quality, OWDA's established loan underwriting criteria and solid portfolio monitoring efforts attribute to the excellent loan performance. Since program inception, there have been no CAP loan payment defaults.

Bonds issued under CAP are secured by loan repayments, which provide a minimum of 1.05 times (x) coverage required under the indenture. With the inclusion of interest earnings and moneys in the CAP surplus fund -- where excess loan repayments are required to be held for two years -- debt service coverage meets the 1.10x level also required under the indenture. Furthermore, significant security enhancement is provided by a subordinate lien on surplus revenues released from the authority's unrestricted account of the cross-collateralization fund (UCCF) established under OWDA's 1995 fresh water program. In 2003, OWDA released $17.4 million from the UCCF. To the extent that moneys from this account are not needed to cure deficiencies in any senior or parity fresh water programs, the UCCF is available to make up deficiencies in the CAP debt service and debt service reserve funds.

With excess loan repayments, and pledged funds (including released funds from the UCCF assuming 20% defaults on the Freshwater program), the CAP portfolio could withstand 40% defaults on all loans in any four-year period without causing a bond default. The 40% default tolerance exceeds the 35% level currently required by Fitch's 'AA' stress test. The CAP should continue to expand and diversify as OWDA recently instituted a maximum loan size of $3 million per project and as local government demand for low-interest water, wastewater, and sewerage project financing remains strong.