OREANDA-NEWS. Fitch Ratings assigns a 'AA' rating to the following Vermont Housing Finance Agency (VHFA) bonds:

--$10,140,000 multiple purpose bonds, series 2016 C;

--$20,220,000 million multiple purpose bonds, series 2016 D.

Additionally, Fitch affirms the ratings on approximately $227 million in parity debt (see full list at the end of this release).

The Rating Outlook on all bonds is Stable.

SECURITY

The bonds are general obligations of the agency and are secured by single-family mortgages, multi-family loans, mortgage-backed securities (MBS), and certain cash and investments held under the resolution. The multiple purpose bond program rating does not rely on the general obligation pledge to maintain the 'AA' rating currently assigned to the bonds.

KEY RATING DRIVERS

STRONG PROGRAM OVERCOLLATERALIZATION: As of FY 2015, the program had 120.3% asset parity level, which is sufficient to support the 'AA' rating.

MODERATELY SOUND PORTFOLIO PERFORMANCE: The portfolio's performance is currently adequate for single family loans and strong for multifamily loans, mitigating the potential for losses to the program. Additionally, actual loan losses for this program have been minimal (approximately 1.3% of bonds outstanding) since program inception in 2007.

STRENGTHENING PORTFOLIO COMPOSTION: After the transfer of loans into the Indenture and origination of new loans following the 2016 series C&D issuance, the percentage of MBS in the portfolio will increase to 38% (from 29% as of November 2015). The multifamily portfolio continues to decline and will only comprise 6.5% of the portfolio compared with 10% as of November 2015.

INDENTURE PROVISIONS: The supplemental indentures allow for program funds to be withdrawn down to 102% asset parity.

RATING SENSITIVITIES

WITHDRAWAL OF ASSETS: Withdrawing of program funds to the legal requirement of 102% could put negative pressure on the rating and may result in a negative rating action.

CHANGES IN PORTFOLIO COMPOSITION: Any significant changes to the portfolio composition could have a positive or negative influence on the rating.

LOAN PERFORMANCE: If loan performance deteriorates beyond current Fitch stressed loss assumptions, there may be negative pressure on the rating.

CREDIT PROFILE

The 2016 series C and D bonds are expected to be used to refund outstanding obligations previously issued under a separate single-family indenture and to finance the purchase of mortgage-backed security certificates. In conjunction with the refunding of previously issued debt obligations, the mortgage loans and certificates securing the refunded bonds will be transferred to this indenture.

As of May 31, 2016, the multiple purpose portfolio consisted of: 57.6% single-family whole loans, 34.8% MBS certificates, and 7.6% multi-family loans. The single-family whole loan portion of the portfolio is comprised of: 49% uninsured (with an 80% LTV or less), 36% privately insured (primarily by Mortgage Guaranty Insurance Corporation), and 15% federally insured (FHA/VA/RD). Approximately 5.7% of the single-family loans are delinquent (60+ days) as of May 31, 2016; however, actual losses in the program have been minimal ($2.9 million, or 1.3% of bonds outstanding) since inception in 2007.

The multi-family housing loans, which have an outstanding mortgage balance of $17.1 million, are associated with elderly and family developments diversified throughout the state of Vermont. The multi-family portfolio is made up of 22 separate developments consisting of 640 units. Seventeen of the 22 developments are either partially or fully subsidized under Section 8. Currently, there are no delinquencies in the multi-family portfolio.

In addition to the single-family whole loans, the multi-family loans, and the MBS certificates, the program has approximately $39 million in cash and investments as of May 31, 2016, which are primarily invested in highly-rated securities. As of FY 2015, the program demonstrated an asset parity position of 120.3%. Under Fitch stress scenarios, which include interest rate stresses, loan origination stresses, and single-family whole loan loss assumptions, the program demonstrated a minimum of 121.2% asset parity for the life of the bonds. This level of overcollateralization is sufficient to support the 'AA' rating on the program given the current composition of the portfolio. Fitch's ongoing credit analysis will be driven by the indenture's actual asset parity position, portfolio composition and performance, financial results, and cash flow strength.

Fitch has also affirmed the following VHFA multiple purpose bonds at 'AA':

--$12.8 million, series 2007 A;

--$16.5 million, series 2007 C;

--$9.2 million, series 2008 C;

--$2.4 million, series 2012 A;

--$25.8 million, series 2012 B;

--$11.1 million, series 2012 C;

--$5.1 million, series 2013 A;

--$2.7 million, series 2013 B;

--$12.6 million, series 2013 C;

--$21.9 million, series 2014 A;

--$17.8 million, series 2014 B;

--$0.6 million, series 2015 A;

--$18.4 million, series 2015 B;

--$4.3 million, series 2015 C;

--$7.5 million, series 2015 D;

--$3.2 million, series 2015 E;

--$10.6 million, series 2015 F;

--$15.3 million, series 2015 G;

--$14.6 million, series 2016A;

--$15 million, series 2016B.