OREANDA-NEWS. November 25, 2015. Fitch Ratings has assigned an 'AAA' rating to the following bonds issued by the Oklahoma Water Resources Board (OWRB, or 'the board'):

--Approximately \\$115 million revolving fund revenue bonds - clean water program series 2015.

The bonds will be used to finance eligible clean water projects within the state, to finance the state match component required for federal grant funding, and to pay for the cost of issuance. The bonds are expected to price via negotiation on or around December 1.

In addition, Fitch has affirmed the following:

--\\$451.5 million outstanding state revolving fund (SRF) revenue bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from loan repayments, amounts held in funds established under the respective bond indentures, interest earnings and certain excess amounts available under the master trust indenture.

KEY RATING DRIVERS

SOUND FINANCIAL STRUCTURE: Fitch's cash flow modeling demonstrates that OWRB's combined clean water state revolving fund (CWSRF) and drinking water state revolving fund (DWSRF) loan pool programs (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).

LARGELY UNRATED POOL: Approximately 72% of OWRB's combined pool consists of unrated entities, which Fitch conservatively assumes to be of speculative-grade credit quality in its analysis. In accordance with its criteria, Fitch has assigned internal credit opinions to two of the largest unrated borrowers. Because of the unrated nature of the pool, the overall credit quality is below average.

MODERATE POOL DIVERSITY: OWRB's SRF program compares closely in diversity to similar programs rated by Fitch. The pool consists of 147 pledged borrowers, with the top 10 participants representing 53% of the total portfolio.

STRONG PROGRAM MANAGEMENT: Management has demonstrated strength and capability in its underwriting and monitoring processes, as evidenced by the fact that program has never experienced a pledged loan default.

RATING SENSITIVITIES

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

CREDIT PROFILE

OWRB was established in 1957 as an agency and department of the state of Oklahoma, and serves as the state's financing vehicle for local government water and wastewater capital funding. In addition to managing the SRF programs, the board administers an additional state loan program and two grant programs. OWRB is also responsible for administering state laws related to water rights, promulgating state water standards, and developing and updating the state comprehensive water plan.

With respect to OWRB'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 stable over the past several years.

SOUND FINANCIAL STRUCTURE, STRONG DEFAULT TOLERANCE

Fitch measures financial strength of SRFs by calculating the program asset strength ratio (PASR). The PASR includes the sum of the total scheduled pledged loan repayments, account earnings, and reserves divided by total scheduled bond debt service. The OWRB's PASR is 1.8x, which is mostly in line with Fitch's 2015 'AAA' rating category median of 1.9x.

Cash flow modeling demonstrates that the program can continue to pay bond debt service even with hypothetical loan defaults of 100% over the first, 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 51% as produced by the PSC. The rating stress hurdle is calculated based on overall program credit quality as measured by the rating of underlying borrowers, size, loan term and concentration.

LOSS PROTECTION PROVIDED BY RESERVES AND OVERCOLLATERALIZATION

The series 2013B and 2014A bonds used the reserve-fund structure, wherein loss protection for bondholders is provided primarily by dedicated debt service reserve funds. All other outstanding bonds issued since 2010, including the series 2015 bonds, use the cash-flow structure, wherein loss protection is provided primarily by pledged loan repayments made in excess of bond debt service, or overcollateralization.

Reserves from the series 2013B and 2014A bonds currently stand at approximately \\$67.5 million, which equates to 11.9% of total bonds outstanding, after the series 2015 bonds are issued. On an annual basis, loan repayments overcollatarlize bond debt service by a minimum of 1.3x, which is in line with Fitch's 'AAA' rating category median.

Reserves released from lien of the associated bonds, excess loan repayments, and investment earnings are deposited into the deficiency fund, which may be used to pay debt service requirements on any series of SRF bonds issued under the MTA. The program is enhanced by a cross-collateralization feature of the separate CWSRF and DWSRF programs, which allows for shortfalls in one program to be covered by surpluses in the other. This feature allows Fitch to look at the separate programs on a combined basis in its modeling analyses.

LOAN POOL MODERATELY DIVERSIFIED, LARGELY UNRATED

The combined loan pool is composed of 147 pledged borrowers. In aggregate, the top 10 borrowers represent 53% of the pool versus Fitch's 'AAA' median level of 55%. Tulsa Metropolitan Utility Authority (not rated by Fitch but assessed to be of strong credit quality) is the pool's largest participant, making up 12.5% of the total. At 7.4% and 5.9% respectively, the second largest and third largest borrowers are the Broken Arrow Municipal Authority and the Oklahoma City Water Utilities Trust (both also not rated by Fitch but assessed to be of solid credit quality). The remaining top 10 borrowers range from 2.2% to 5.8% in size. Based on the characteristics described above, Fitch views the loan pool as having diversity similar in comparison to other 'AAA'-rated pooled programs.

Inclusive of the internal credit opinions assigned by Fitch, approximately 40% of the portfolio is considered to be investment grade; this compares unfavorably to Fitch's 'AAA' median of 70%. Additionally, as a result of the largely unrated loan pool, the 'AAA' liability hurdle is high at 51% versus an 'AAA' median of 31%, which translates to below-average overall pool credit quality. However, the strong cash flow coverage and solid loan security pledges somewhat mitigate the unrated pool risk, as all loans are backed by net water/sewer system revenues.

EXPERIENCED PROGRAM MANAGEMENT AND SOUND UNDERWRITING

The board's formal underwriting procedures consist of approval of clean water or drinking water project feasibility, review of loan credit, and application and approval by OWRB. A borrower must enter into a loan agreement with OWRB and enact an ordinance or resolution that provides for loan repayments through issuance of a local note. Borrower loan agreements typically must demonstrate 1.25x ADS coverage on outstanding loans, including any additional debt. Loans to smaller systems are secured further by a mortgage of the local borrower's system facilities.

Provisions in the loan agreements allow OWRB to consistently monitor borrowers, which are required to submit monthly financial reports, as well as annual audited financial statements. Borrowers must maintain rates and charges sufficient to cover operating and maintenance expenses, and net revenue available for loan debt service must be maintained at 1.25x ADS on all parity and senior debt obligations. In the event of a loan default, OWRB has the right to directly impose, enforce, and collect charges on users of the defaulting system. OWRB has never experienced a default by any borrower within its pledged loan programs.

OWRB is the sole administrator of the CWSRF, while administration of the DWSRF is shared between the board and the state's Department of Environmental Quality.