APPROXIMATELY $8 MILLION IN DEBT AFFECTED
NEW YORK, Dec 17, 2010 -- Moody's Investors Service has assigned a Aaa rating to the $8 million Arizona
Housing Finance Authority Single Family Mortgage Revenue Bonds, Series 2009-1.
The Aaa rating reflects Moody's view of the program's superior security provided
by Government National Mortgage Association (GNMA), the Federal Home Loan
Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association
(Fannie Mae) mortgage-backed securities (MBS), a sound legal structure and cash
flow projections that exhibit sufficient revenues to pay timely debt service.
This bond issue represents the second issuance of bonds under the
trust indenture dated December 1, 2009, as amended, issued pursuant to the New
Issue Bond Program (NIBP) established jointly by Fannie Mae and Freddie Mac (the
GSEs), the Federal Housing Finance Agency, and the U.S. Department of the
Treasury (Treasury) under which the Treasury provides funding for bond issuance
by HFAs. Under NIBP, the bonds are delivered to the GSEs in exchange for GSE
securities, which are then placed by the Issuer with the Treasury.
For the purpose of the NIBP, the Series 2009-1 represents the Authority's first
release of proceeds from escrow under the 2009 trust indenture for conversion to
a long-term fixed interest rate mode. Under the revised NIBP guidelines, the
Authority has up to six closings, including this one, to convert bonds held in
escrow to fixed interest rate by December 31, 2011. Any proceeds not converted
by December 31, 2011 must be used to redeem Program Bonds. After, this issuance,
the Authority will have $17 million in escrow outstanding.
USE OF PROCEEDS: Bond proceeds will be used to purchase MBS and to fund portions
of the down payment and closing cost assistance for homebuyers.
LEGAL SECURITY: The bonds are limited obligations of the Authority, payable
solely from and secured by the trust estate which includes all right, title and
interest in the mortgage backed securities, pledged receipts, interest earnings,
and all moneys and investments held with the trustee and pledged under the 2009
trust indenture. The bonds are separately secured and are not issued on parity
with the Authority's other bonds issued under its single family program.
INTEREST RATE DERIVATIVES: None
- The Aaa credit quality of the MBS which provides security for the bonds.
- The program's expected asset-to-debt ratio of 100% or higher.
- The program's sound legal structure.
- External factors that are outside of the Authority's control such as ability
to continue to originate mortgage loans in the uncertain market and generate
investment returns given lack of highly rated guaranteed investment contract
LOAN PORTFOLIO CHARACTERISTICS AND PERFORMANCE: STRONG PORTFOLIO COMPOSITION DUE
TO HIGHLY RATED MBS
Moody's believes the loan portfolio will provide the highest quality
security for the bonds as the MBS to be purchased are guaranteed to full and
timely payment of the principal and interest by the GNMA, Freddie Mac and Fannie
Mae. Moody's rates the obligations of GNMA Aaa because the full faith and credit
of the United States backs the guarantee, and rates the obligations of Fannie
Mae and Freddie Mac Aaa because of their equity positions, historical access to
the capital markets, and their many levels of government support. These strong
mortgage guarantees protect the bond program from cash flow disruptions and
losses from future loan defaults. The MBS will have an established
pass-through rate and are guaranteed by GNMA, Freddie Mac or Fannie Mae, or a
combination of them, with respect to payment regardless of the actual
performance of the underlying pool of mortgages.
FINANCIAL PERFORMANCE: STRONG OVER COLLATERALIZATION EXPECTED FOR PROGRAM BACKED
Moody's expects the program to generate sufficient revenue from its
mortgage-backed securities to meet all scheduled debt service payments. The
program's asset-to-debt ratio is expected to be at or above 100% due to interest
rate spreads between the assets and debts under the indenture. This high level
of over-collateralization is strong for this type of program. Interest due on
the bonds is less than the interest due on the loans less all program,
servicing, trustee and guarantee fees. Interest payments are passed through to
bondholders, and MBS principal repayments and prepayments will be used to redeem
the bonds. The program's legal provisions help to maintain ongoing credit
strength via the establishment of a sound legal structure and provision for high
CASH FLOW PROJECTIONS: FULL AND TIMELY PAYMENT DEMONSTRATED UNDER ALL PREPAYMENT
Based on pre-pricing cash flow projections submitted by the Authority's senior
underwriter, Moody's believes the Authority's NIBP single family program will
continue to generate enough revenue from the MBS and investments to fully meet
all existing debt obligations in a timely manner under all stressful prepayment
scenarios. Cash flows assume various prepayment scenarios (0% PSA, 100%, 700%
PSA and non-origination scenarios), late delivery of available loan proceeds
that have not been committed yet to the purchase of MBS and conservative
investment earnings. In all cases, parity remains above 100%. Further, no
guaranteed investment contract is being solicited by the Authority. Cash
flows assume 0% investment rate per annum for the life of the transaction.
What could change the rating - UP
What could change the rating - DOWN
Presence of economic or external factors that severely erode asset to debt ratio
could put a downward pressure on the rating.
Michael Trailor, Executive Director
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.
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
issuer or obligation satisfactory for the purposes of assigning a credit rating.
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.
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Gregory W. Lipitz
Public Finance Group
Moody's Investors Service
Senior Credit Officer
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S INVESTORS SERVICE HAS ASSIGNED A RATING OF Aaa TO THE ARIZONA HOUSING FINANCE AUTHORITY HOME SINGLE FAMILY MORTGAGE REVENUE BONDS, SERIES 2009-1
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New York, NY 10007