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Fitch Rates Rhode Island's $46.6MM Water Pollution Control SRFs 'AAA'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns an 'AAA' rating to the Rhode Island Clean Water Finance Agency's (the agency, or RICWFA) $46.6 million water pollution control revolving fund revenue bonds, series 2009 A (pooled loan issue). The bonds are expected to price during the week of September 14 via negotiation. Bond proceeds will be loaned to 11 borrowers for certain water pollution abatement projects through the clean water state revolving fund (CWSRF). In addition, Fitch affirms the rating on the agency's $420 million outstanding senior bonds, on parity with the new issue, at 'AAA'. The Rating Outlook is Stable.

The 'AAA' rating reflects strong default tolerance due to sizable reserves and high loan credit quality. The CWSRF loan pool includes 24 municipal borrowers. Approximately 98% of the loan pool's principal is from borrowers with public investment grade ratings. The CWSRF program reserves, which include both pledged and de-allocated CWSRF capitalization grants, are available to cure potential loan defaults. The reserves equal approximately 32% of outstanding bonds and provide continued bond performance, even assuming 85.4% borrower defaults over the next four years.

As additional security, the agency could invest its drinking water state revolving fund (DWSRF; loan pool program rated 'AAA' by Fitch) or CWSRF reserves in either pool should any of the borrowers default, which is permitted under the 2004 cross-investment agreement. However, the agency is not legally obligated to use this feature.

The program's reserves and high credit quality of the borrowers offset, to some extent, concentration risk posed by the two largest borrowers, Narragansett Bay Commission (NBC) and the city of Warwick, which comprise 48% and 20%, respectively, of the pledged CWSRF loan portfolio. However, NBC's concentration continues to increase, as a portion of the proceeds from this issue will help fund a $55 million loan to NBC. While the RICWFA maintains an internal policy that limits NBC's concentration to 50% of the CWSRF loan pool, the agency is currently considering alternatives to further manage NBC's concentration risk to the pool. The city of Warwick's concentration should drop over the next year, as it has utilized most of the borrowing currently authorized for its system improvements.

Significant additional debt issuance will be driven by Rhode Island's program to reduce the discharge of pollutants into Narragansett Bay, about two-thirds of which is due to combined sewer overflows (CSOs) from the city of Providence area. CSOs continue to affect the bay; wider areas are closed to shell fishing during wet weather, tangibly affecting the region's economy. Rhode Island has provided NBC with low-cost capital since 1980, when it created NBC to assume Providence's sewage facilities, and the CWSRF is expected to continue to provide the majority of funding for the CSO abatement plan. Phase I of NBC's CSO plan, which cost approximately $348 million, was completed and became operational in October 2008. In early 2007, NBC reassessed needs for phase II facilities; design of these facilities is expected to be completed in 2010. Phase II construction is expected to take four years. When phase II is complete, phase III facilities will be reassessed. In 2003, the NBC received from the Rhode Island Public Utilities Commission approval for multiyear rate increases to cover the debt associated with this plan.

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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Comment:Fitch Rates Rhode Island's $46.6MM Water Pollution Control SRFs 'AAA'; Outlook Stable.
Publication:Business Wire
Geographic Code:1U2NY
Date:Aug 31, 2009
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