OREANDA-NEWS. Fitch Ratings has assigned a 'AAA' rating to the following bonds issued by the New York State Environmental Facilities Corporation (EFC) under its 2010 master financing indenture (MFI) program:

--Approximately $110.5 million State Revolving Fund (SRF) revenue bonds (2010 Master Financing Program) (Green Bonds), series 2016B (Tax-Exempt);

--Approximately $22.9 million SRF revenue bonds (2010 Master Financing Program) (Green Bonds), series 2016C (Federally Taxable).

The 2016B bond proceeds will be used to provide financing to SRF pool participants for clean water and drinking water projects. The series 2016C bonds will be used to replenish the Green Jobs Green New York Program revolving loan fund for loans made to the New York State Energy Research and Development Authority. The bonds are scheduled to price via negotiation the week of August 29.

In addition, Fitch has affirmed the following ratings:

--Approximately $1.28 billion outstanding parity 2010 MFI SRF revenue bonds at 'AAA';

--SRF Extendable Municipal Commercial Paper (EMCP) notes (Series 1) in an aggregate authorized amount not to exceed $200 million at 'F1+'.

The Rating Outlook is Stable.

SECURITY

The senior lien 2010 MFI revenue bonds are secured by a senior lien pledge on borrower loan repayments and, on a subordinated basis, excess available reserve account release payments from the senior New York City Municipal Water Finance Authority (NYCMWFA) program bonds. The 2010 MFI bonds are further secured by a parity commitment to use any available amounts in the clean water and drinking water SRF equity funds to meet shortfalls.

If issued, the EMCP notes are expected to be repaid by proceeds of future 2010 MFI obligations and are further secured by a subordinate commitment on EFC's SRF equity funds. However, the EFC does not anticipate issuing from the EMCP program at this time.

KEY RATING DRIVERS

SOUND FINANCIAL STRUCTURE: Fitch's cash flow modeling demonstrates that the program can continue to pay bond debt service even with loan defaults in excess of Fitch's 'AAA' liability rating stress hurdle, as produced using Fitch's Portfolio Stress Calculator (PSC).

HIGHLY-RATED BORROWER POOL: Approximately 85% of the borrowers in the 2010 MFI pool have investment-grade ratings. Most loans are secured by borrowers' general obligation or utility revenue pledges.

MODERATE POOL DIVERSITY: The loan portfolio has moderate pool diversity, with the top-10 borrower concentration at approximately 49% of the loan pool. Top-10 concentration is slightly better than Fitch's 'AAA' median, which was 55% in 2015.

STRONG PROGRAM MANAGEMENT: EFC manages the largest SRF program in the nation. As evidence of effective management, there have been no pledged loan defaults in any of the EFC's SRF programs since the inception of the original program in 1991.

EMCP LINKED TO 2010 MFI Program: The EMCP rating is linked to the credit strength and superior market access of EFC's 2010 MFI SRF program, as this program is expected to provide for the source of payment of the EMCP notes through future refunding bonds.

RATING SENSITIVITIES

REDUCTION IN MODELED STRESS CUSHION: Significant deterioration in aggregate borrower credit quality, increased pool concentration, or increased leveraging resulting in the (New York State Environmental Facilities Corporation) program's inability to pass Fitch's 'AAA' liability default hurdle would put downward pressure on the rating. The Stable Rating Outlook reflects Fitch's view that these events are not likely to occur.

CREDIT PROFILE

The EFC provides financial assistance for eligible projects within the state under two active SRF financing programs: the 2010 MFI program (including the series 2016B and 2016 C bonds) and the NYCMWFA program (senior and subordinate bonds rated 'AAA'/'AA+').

The 2010 MFI program is structured using cash flow model methodology, wherein pledged loan repayments made in excess of bond debt service protect bondholders from risk of payment deficiencies. In addition to the senior lien SRF revenue bonds, a separate series of subordinate guarantee obligations has been issued under the 2010 MFI (the 2010 MFI guarantee - not rated by Fitch).

With respect to the 2010 MFI's current and recent bond issues, most of the program's credit metrics, including those of the financial structure and pool credit quality, have remained mostly stable over the past several years although some minor negative migration has occurred.

FINANCIAL STRUCTURE EXHIBITS SOUND FINANCIAL STRUCTURE

Fitch measures financial strength of SRFs by calculating the program asset strength ratio (PASR). The PASR calculation for the 2010 MFI program includes total scheduled loan repayments divided by total scheduled bond debt service. The 2010 MFI's PASR is sound at approximately 1.4x, although it falls below Fitch's 2015 'AAA' median level of 1.9x.

Cash flow modeling demonstrates that the program can continue to pay bond debt service even with hypothetical loan defaults of 57% over the first four years, and 100% in the middle and last four years of the program's life (as per Fitch criteria, a 90% recovery is also applied in its cash flow model when determining default tolerance). This is in excess of Fitch's 'AAA' liability rating stress hurdle of 37% as produced by the PSC. The rating stress hurdle is calculated based on overall pool credit quality as measured by the rating of underlying borrowers, size, loan term, and concentration.

Fitch's calculation of the 2010 MFI's PASR and default tolerance excludes reserve releases from the NYCMWFA program, as described below. Inclusion of such releases would result in an improvement on both metrics.

LOSS PROTECTION PROVIDED BY OVERCOLLATERALIZATION, FLOWS FROM NYCMWFA PROGRAM

The bonds' primary form of loss protection is provided by surplus loan repayments pledged under the 2010 MFI program made in excess of bond debt service (overcollateralization). On an annualized basis, such surplus loan repayments overcollateralize aggregate 2010 MFI bond debt service by a minimum of 1.3x, which is equivalent to Fitch's 2015 median.

The 2010 MFI bonds are also supported on a subordinate lien basis by sizeable debt service reserve releases (deallocations) from the NYCMWFA program. Although viewed as a credit positive, because of the subordinate lien nature of the deallocations and due to uncertainty that such pledges will be available throughout the 2010 MFI program's expected life, such amounts were excluded in Fitch's cash flow model analysis.

If the previously mentioned support methods are insufficient to cover 2010 MFI bond payment deficiencies, non-pledged amounts in the clean water and drinking water SRF equity accounts are also expected to be used should a shortfall occur. As of Aug. 1, 2016 the total SRF equity funds balance was approximately $1.6 billion. As these amounts are not pledged to bondholders they were not included in Fitch's analysis.

HIGH-QUALITY LOAN POOL WITH AVERAGE CONCENTRATION

The pool program consists of 307 borrowers, the top 10 of which comprise approximately 49% of the loan pool. Westchester and Onondaga Counties (both counties' limited tax general obligation GO bonds rated 'AAA' by Fitch) remain the largest two program borrowers, representing 16% and 10% of outstanding pool loan principal, respectively. Single-borrower and top 10 concentration measures are mostly in line with Fitch's 'AAA' medians. The remaining top-10 borrowers range in size from 1.7% - 6.9% of the pool.

Fitch estimates that approximately 85% of program participants exhibit investment-grade credit quality, with the large majority rated 'A' or higher. In aggregate, pool credit quality is slightly below average in comparison to similar municipal pools as reflected by an 'AAA' liability stress of 37%, which is slightly above Fitch's median of 31% (lower liability stresses correlate to stronger credit quality). Approximately 86% of loan repayments are secured by GO pledges and 14% secured by revenue pledges. The driver of the somewhat elevated stress hurdle is the longer-than-average weighted average life of the pool, which was 23 years versus a median level of 17 years.

CROSS COLLATERALIZATION, INTERCEPTABLE AID PROVIDE ADDITIONAL PROTECTION

The clean water SRF (CWSRF) and drinking water SRF (DWSRF) are accounted for separately. However, the funds are cross-collateralized in that the 2010 MFI allows available resources in the CWSRF and DWSRF to be available for lending to either SRF. This cross-collateralization feature links the SRF programs and thus allows Fitch to combine the funds in its modeling analysis.

Underlying loans are subject to a state aid intercept mechanism in the event of delinquent repayments. However, Fitch conservatively did not consider this mechanism in its analysis as evidence of each borrower's interceptable aid was not provided.

STRONG PROGRAM MANAGEMENT AND UNDERWRITING

The EFC was created by the EFC Act in 1970 as a public benefit corporation of the state. EFC manages the SRF programs on behalf of the federal grant recipients which include the Department of Environmental Conservation (CWSRF program) and the Department of Health (DWSRF program). As a result of strong loan underwriting and monitoring, the EFC SRF programs have never experienced a default.