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Fitch Rates Colorado's $200MM Education Loan Tax & Rev. Antic. Notes 'F1+'.

SAN FRANCISCO -- Fitch rates the State of Colorado's $200,000,000 education loan tax and revenue anticipation notes series 2006B 'F1+'. Also, Fitch affirms its 'F1+' rating on $145 million in outstanding parity notes series 2006A. The new notes will be sold competitively on Dec. 12 and will mature Aug. 3, 2007. The state's financial advisor for the notes is RBC Capital Markets.

The 'F1+' rating reflects the education loan tax and revenue anticipation notes' (ETRANs) strong security, payable from individual school districts' loan repayments and by the state treasurer's covenant to use substantial identified resources to purchase defaulted district loans, if any, as an investment. These and other structural features significantly enhance credit quality. Also, a significant share of the loan amount is borrowed by school districts with good credit quality. This note issue is the second for this fiscal year, with both series having a parity claim on district property tax collections.

Note proceeds will be used to make interest-free loans to qualifying school districts to assist with the districts' cash flow. The loans are made under a program managed by the state treasurer, retaining safeguards that protect credit quality that were established a few years ago in response to severe financial problems by one borrowing district. These safeguards include eligibility requirements, monitoring throughout the year, and enforcement measures to minimize non-payment risks.

Each district covenants to repay its loan by remitting property taxes received after March 1, 2007 to the state treasurer one day after receipt from the county treasurer. Loan repayments are for principal only, although the loans will bear interest once a district defaults. Note interest will be pre-funded from state general fund resources at closing. Most of the district loan repayments will be made in March, May, and June, coincident with statewide property tax collections. The districts are borrowing from 6%-72% of their expected tax levy through the two note issues, with the higher amounts borrowed by the largest districts. The borrowers include 19 districts, including four of the state's five largest based on enrollment.

All district loan repayments are due by June 26, 2007, well in advance of the notes' Aug. 3 maturity. At that time, any non-payment constitutes default by the district, and the loan begins to bear interest. Payment to noteholders is protected further by the state treasurer's covenant to provide the shortfall amount using any funds in his custody available for investment. The state has considerable resources available for such investment, including the State Education and Highway Funds. These two funds are expected to equal about $988 million on June 30, 2007. These resources are distinct from those available for borrowing to repay the state's own cash flow notes.

The four largest participating school districts are expected to make up 86% of the total district borrowings. These districts are among the state's largest, and have a Fitch rating or evaluation showing good credit quality. Of the remaining 15 districts participating in the loan program, no one represents more than 5%. The cash flows demonstrate each district's ability to fully repay the loan, with three of the four largest district borrowers anticipated to be fully repaid at least one month ahead of the June 26, 2007 due date. The largest borrower, Denver School District No. 1, is expected to use just 41% of the note proceeds, and will repay the full amount by June 20, more than one month ahead of the note repayment date.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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:Dec 8, 2006
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