OREANDA-NEWS. Fitch Ratings assigns an 'AA-' rating to approximately $225,460,000 in Dormitory Authority of the State of New York (DASNY) school districts revenue bond financing program revenue bonds, consisting of:

--$87,730,000 series 2016E;
--$44,030,000 series 2016F;
--$42,265,000 series 2016G;
--$25,305,000 series 2016H;
--$8,710,000 series 2016I;
--$17,420,000 series 2016J.

The bonds are scheduled to be sold through negotiation on or about May 19, 2016.

The Rating Outlook is Stable.

SECURITY

Program bonds are special obligations of DASNY, payable from general obligation (GO) bond payments from school district borrowers. A statutory state school aid intercept enhances the credit quality of the districts' GO bonds and is the basis for the rating.

KEY RATING DRIVERS

PROGRAM RATING BASED ON STATE INTERCEPT: The 'AA-' program rating, two notches below the State of New York's 'AA+' Issuer Default Rating (IDR), reflects the statutory ability to intercept available state school aid to provide funds to pay debt service if borrowers fail to make payments on the underlying loans to DASNY.

NO ACCELERATION OF AID REQUIRED: The DASNY state aid intercept program is more limited than those of other states, requiring the intercept of aid only as it would otherwise be paid to the local borrowers, rather than providing for an advance of all aid that has been appropriated but not yet paid.

INTERCEPTABLE PERIOD COVERAGE NOT ASSURED: Although annual state aid has provided coverage of pro forma maximum annual debt service (MADS) for all participating school district borrowers, not all school districts participating in the program have historically received sufficient state aid during all intercept periods. The program does not include any coverage test for interceptable aid, and future borrowing by a school district, including note issuance, can dilute the amount of available interceptable state funds.

STRONG STATE SUPPORT: There is a constitutional mandate for, and strong history of, state support for education. Fitch believes that program management by DASNY, a key issuer for the state's capital program, is a credit strength.

RATING SENSITIVITIES

STATE CREDIT QUALITY: The rating is sensitive to changes in New York's IDR, to which this rating is linked; changes in the statutes or administrative procedures governing the state aid intercept program; and trends in state school aid appropriations.

CREDIT PROFILE

Under the school districts revenue bond financing program, borrowing districts deliver GO bonds to DASNY as evidence of their separate obligations to repay their loans. The DASNY program bonds are expected to be repaid from district loan payments to DASNY. No school district is obligated to make payments on behalf of any other district, and the pledged state aid payable to each district secures only the obligations of that individual district.

Loan payments to DASNY are due at least 45 days prior to debt service payments on the DASNY bonds. Borrowing districts agree to assign and pledge to DASNY any state aid funds due to their district. Pursuant to statute and a memorandum of understanding between DASNY, the state comptroller, and the New York State Education Department, upon any school district payment delinquency to DASNY the comptroller must pay to the bond trustee any eligible state funds due and otherwise available to the delinquent school district until debt service is met.

Despite strong state support for education, there is no legal obligation to accelerate appropriated state aid monies to allow for timely bond payment in the event that there are no funds otherwise to be paid to the school district in the intercept period (i.e. between when payment is due to DASNY and when payment is due to bondholders). This leaves bondholders vulnerable to inadequate coverage by state aid payable during the intercept period, a concern exacerbated by historical and potential delays in state aid payments during times of state budgetary and cash flow pressure. Although annual state aid has provided coverage of pro forma MADS, not all participating school districts have historically received sufficient state aid during all intercept periods.

New York's school aid has grown more rapidly than overall state spending in recent years. The recently adopted fiscal 2017 budget includes a 6.5% increase in appropriated school aid, compared to a 2% increase in overall state operating funds. Fiscal 2016 appropriated school aid rose 6.1%.

DASNY is authorized to finance only school district capital facilities and equipment that have been approved by the Commissioner of Education and are eligible for building aid. So long as the assets to be financed satisfy these criteria, participation in the program is at the discretion of the districts. Nevertheless, Fitch believes that program management by DASNY, a critical component of the state's overall capital funding program and a sophisticated and experienced manager of debt, is a credit strength.

There are 25 school district participants in the current borrowing. Fitch rates the program based on the state intercept enhancement, rather than the credit quality of the underlying districts.