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Fitch Rates New Hampshire Muni Bond Bank's $102MM 1978 Resolution Bonds 'AAA'; Outlook Stable.

CHICAGO -- Fitch Ratings assigns an 'AAA' rating to the following New Hampshire Municipal Bond Bank's (NHMBB) non-guaranteed bonds, issued under the 1978 General Bond Resolution:

--$102 million 2010 series B bonds.

The bonds are expected to sell via negotiation during the week of June 14, 2010.

In addition, Fitch affirms $596.4 million of outstanding NHMBB bonds at 'AAA'.

The Rating Outlook is Stable.

RATING RATIONALE:

--Based on loan repayments and reserves funded at maximum annual debt service, NHMBB's bond program can withstand up to 20.9% loan defaults for four years without causing an interruption in bond payments. This is consistent with Fitch's criteria for assigning an 'AAA' rating given the loan pool's borrowers' credit quality, size and diversification.

--The program's loan security is strong, with all loans backed by a general obligation pledge. There is additional protection from borrower defaults through a state-aid intercept mechanism. As a result, approximately 74% of loans are estimated to exhibit investment-grade characteristics. Fitch does not express an opinion as to the credit quality of the remaining underlying loans. Nevertheless, there have been no defaults by any borrowers since the bond bank began operations in 1977.

--The program, which consists of 151 borrowers, is diverse although the single largest borrower concentration accounts for 10.4% of the portfolio.

--Cash Funded debt service reserves, invested in U.S. Treasury and Agency Securities, provide security in the event of any missed loan repayments.

KEY RATING DRIVER:

Maintenance of strong reserves and loan pool credit quality are important to preserving the 'AAA' credit rating.

SECURITY:

Program bonds are secured by borrower loan repayments and debt service reserve funds. A state moral obligation on the reserve fund and a state-aid intercept provision for borrowers provide additional credit enhancement.

CREDIT SUMMARY:

The loan pool consists of 151 borrowers from cities, towns, counties, school districts and other local governments throughout the state. All loans are backed by the borrowers' general obligation pledges. The debt service reserve fund, which is sized at maximum annual debt service on the loans, is funded with bond proceeds and invested in U.S. treasury and agency securities. After this issue, pledged reserves are expected to total $93 million, or 15% of bonds outstanding. In addition, the bank maintains approximately $9.3 million in unrestricted cash, which is not pledged to bondholders but may be used if a deficiency occurs if available.

Loan repayments are further backed by an intercept mechanism for any state funds payable to borrowers. The bonds are also supported by a state moral obligation to replenish the debt service reserve fund if it falls below its minimum specified level. Neither the intercept nor the moral obligation has ever been utilized, because no borrower has defaulted on a loan repayment since the bond bank began operations in 1977. Most of New Hampshire's eligible municipalities use the bond bank as their primary borrowing vehicle, because it provides the lowest cost of capital.

The loan portfolio is moderately diverse with the largest borrower, Governor Wentworth School District, comprising 10.4% of the portfolio. The top 10 borrowers account for 50% of the total outstanding loan balance. Approximately 74% of the loans are to school districts, each of which receives an allocation of the state property tax and many of which also receive 'adequate education grants' from the state; these funds are subject to the state intercept. Loan payments are due five days before the bond payment dates. Under New Hampshire's state intercept provision, if a borrower fails to make its scheduled loan repayment, the bond bank will certify the failure of that payment with the state treasurer. Three days after the certification from the bank, the state treasurer would pay the defaulted loan amount to the bank's trustee from amounts appropriated and payable by the state to the defaulted borrower, if available. If sufficient state aid is unavailable, it will be paid from subsequent interceptable state aid payments, with bond bank reserves covering the temporary shortfall. To date this mechanism has not been tested as there have not been any loan defaults in the history of the program. NHMBB may charge borrowers 12% interest if a payment is late.

Fitch analyzed the default tolerance of the NHMBB loan pool using a stress test it also applies to state revolving funds and other municipal loan pools. The stress test considers loan quality, single risk concentration, reserve fund size, and debt service requirements. The bond bank's reserve fund is sufficient to pay debt service even if scheduled loan repayments fall short by as much as 20.9% for four consecutive years and no action is taken by the state to replenish the reserve fund. This default tolerance is consistent with Fitch's 'AAA' stress scenario, given the NHMBB's loan pool credit characteristics.

Applicable criteria on Fitch's web site at www.fitchratings.com include:

--'Revenue-Supported Rating Criteria' (Dec. 29, 2009);

--'State Revolving Fund and Municipal Loan Pool Rating Guidelines' (April 28, 2008).

Additional information is available at www.fitchratings.com.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.FITCHRATINGS.COM. 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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Comment:Fitch Rates New Hampshire Muni Bond Bank's $102MM 1978 Resolution Bonds 'AAA'; Outlook Stable.
Publication:Business Wire
Geographic Code:1U3IL
Date:Jun 15, 2010
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