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MOODY'S ASSIGNS Aaa RATING TO $16 MILLION ARKANSAS DEVELOPMENT FINANCE AUTHORITY HOME OWNERSHIP REVENUE BONDS (MORTGAGE-BACKED SECURITIES/MORTGAGE LOAN PROGRAM) 2011 SERIES A

05 Apr 2011

Outlook is Stable; Approximately $100 million in debt affected

Arkansas Development Finance Authority
Housing
AR

Moody's Rating

ISSUE

RATING

Home Ownership Revenue Bonds, 2009 Series A-1

Aaa

  Sale Amount

$24,000,000

  Expected Sale Date

04/14/11

  Rating Description

GNMA/FNMA/FHLMC

 

Home Ownership Revenue Bonds, 2011 Series A

Aaa

  Sale Amount

$16,000,000

  Expected Sale Date

04/14/11

  Rating Description

GNMA/FNMA/FHLMC

 

 
Moody's Outlook   Stable
 

Opinion

NEW YORK, Apr 5, 2011 -- Moody's Investors Service has assigned Aaa rating to $16 million of Arkansas Development Finance Authority ("ADFA") Home Ownership Revenue Bonds (Mortgage-Backed Securities/Mortgage Loans Program), 2011 Series A (the "Bonds"). Aaa ratings to all outstanding bonds have also been affirmed, including approximately $24 million of 2009 Series A that is being re-designated as 2009 Series A-1. The outlook is stable.

The Bonds are the second series issued under the Home Ownership Revenue Bond General Resolution (the "Resolution") adopted November 19, 2009 in connection with the New Issue Bond Program (NIBP), established jointly by Fannie Mae and Freddie Mac (the GSEs), the Federal Housing Finance Agency and the US Treasury. Under NIBP, the Program Bonds are delivered to GSEs in exchange for GSE Certificates, which are then placed with the Treasury. The 2009 Series A Bonds were issued in December 2009 and proceeds held in escrow, pending conversion by the end of calendar year 2011. Upon conversion, the NIBP guidelines require the converted bonds be accompanied by bonds sold to other investors (market bonds) so that the converted bonds comprise no more than 60% of the total bond issue. As a result, in connection with the issuance of Bonds, approximately $24 million of 2009 Series A Bonds are to be converted into long-term fixed rated bonds and denoted 2009 Series A-1 Bonds. After the release of 2009 Series A-1 Bonds, there will remain $76 million of 2009 Series A Bonds in escrow.

RATINGS RATIONALE

The Aaa rating on the Bonds reflects the high quality collateral comprised of GNMA and Fannie Mae Mortgage-Backed Securities (MBS), which have been warehoused and expected to be transferred into the program in connection with issuance of the Bonds, and the investments securing the 2009 Series A escrow prior to conversion.

USE OF PROCEEDS: The proceeds of the Bonds are expected to be used to finance MBS backed by pools of qualifying mortgages made to finance the purchase of single family residences in the State of Arkansas (MBS). The acquisition period ends November 1, 2011, unless extended in accordance with the 2011 A Series Resolution.

LEGAL SECURITY: The Bonds will be special obligations of ADFA and are secured by all revenues and assets pledged under the Resolution which will consist primarily of bond proceeds, eligible collateral (primarily MBS), investment obligations and revenues. While the Resolution provides for a Mortgage Loan Reserve Requirement equal to 3% of mortgage loans, in the event that proceeds of the bonds are solely used to acquire mortgage-backed securities and no mortgage loans are financed, there will be no required deposit into Mortgage Reserve Fund.

INTEREST RATE DERIVATIVES: Not permitted under NIBP

STRENGTHS

-Loan portfolio is expected to be comprised of 100% MBS. The MBS guarantor, GNMA, Fannie Mae and Freddie Mac, guarantees full and timely payment of principal and interest regardless of performance of the underlying mortgages

-Cash flow projections demonstrate sufficient revenues to meet debt service requirements and maintain sufficient parity for the program under all stress scenarios

CHALLENGES

-Ability to continue originating mortgages in the uncertain market as well as to generate investment returns in the ultra low interest rate environment

LOAN PORTFOLIO CHARACTERISTICS: Bond proceeds are expected to be used for acquisition of MBS. As of February 27, 2011, ADFA has warehoused approximately $62 million of MBS consisted of 99.38% GNMA and 0.62% Fannie Mae MBS. A portion of the warehoused MBS is expected to be purchased into the program after the new issuance. MBS provides the highest quality collateral for the Bonds since they are guaranteed as to the full and timely payments of principal and interest by GNMA, Fannie Mae and Freddie Mac, regardless of the performance of the underlying mortgage loans. As a result, Moody's believes the ADFA's MBS loan portfolio will be protected from cash flow disruptions and significant losses associating with loan defaults.

CASH FLOW PROJECTIONS: FULL AND TIMELY PAYMENT DEMONSTRATED UNDER ALL STRESS SCENARIOS

Moody's has reviewed cash flow projections for the program, including the Bonds. The projections incorporate stress tests for various prepayment speeds and origination scenarios. Preliminary cash flow projections show that there are ample funds to meet all debt service obligations under all stress scenarios, including no prepayment, rapid prepayment, split prepayment and non-origination runs when the aforementioned contributed excess assets relating to the current issuance are incorporated. Moody's believes that revenue generated from the program loans and investments will be sufficient to meet existing debt obligations under all stress scenarios.

The principal methodology used in this rating was Strength in Structure: Moody's Approach to Rating Single-Family Housing Bonds Secured by Mortgage-Backed Securities published in October 1998.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings and public information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

Outlook

The stable outlook is based on the legal structure of the transaction, the high quality MBS collateral and the investments securing the remainder of 2009 A escrow prior to conversion.

WHAT COULD CHANGE THE RATING - UP

N/A

WHAT COULD CHANGE THE RATING - DOWN

-Erosion of asset-to-debt ratio

-Downgrade of financial counterparties leading to substantial stress on the program

KEY INDICATORS OF THE PROGRAM (as of December 31, 2010 unless otherwise noted):

Program Asset to Debt Ratio: 100.00x

Program Bonds Outstanding: $100,000,000 ($116,000,000 after the new issuance)

Type of Obligation: Special obligation of ADFA

Cash Flow Structure: Open loop

CONTACT:

Leigh Ann Biernat

VP, Finance and Administration

Arkansas Development Finance Authority

(501) 682-5995 (Phone)

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Ping Hsieh
Analyst
Public Finance Group
Moody's Investors Service

David A. Parsons
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS Aaa RATING TO $16 MILLION ARKANSAS DEVELOPMENT FINANCE AUTHORITY HOME OWNERSHIP REVENUE BONDS (MORTGAGE-BACKED SECURITIES/MORTGAGE LOAN PROGRAM) 2011 SERIES A
No Related Data.
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