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Rating Action:

Moody's assigns Aa2 to DASNY's InterAgency Council Revenue Bonds, Ser. 2019 A-1 and A-2; outlook stable

01 Mar 2019

New York, March 01, 2019 -- Moody's Investors Service has assigned a Aa2 rating to the State of New York's InterAgency Council (IAC) Pooled Loan Program Revenue Bonds, Series 2019 A-1 ($25.835 million) and Series 2019 A-2 (Federally Taxable) ($980,000), issued by the Dormitory Authority of the State of New York (DASNY). The bonds are expected to sell the week of March 11. The outlook is stable.

RATINGS RATIONALE

The enhanced Aa2 rating on the DASNY IAC Series 2019 A-1 and A-2 Taxable bonds is supported by the strong intercept agreement between DASNY, New York's Office for Persons with Developmental Disabilities (OPWDD) and non-profit borrowers who participate in the program to finance facilities to provide essential state services to the disabled. The rating is at the same level as the DASNY OPWDD Intercept Program. The financing-level rating reflects sufficient interceptable funds pledged to pay debt service, clear notification procedures if a missed payment triggers the intercept mechanism, regular and frequent state aid payments, and a half-MADS debt service reserve fund. Coverage of financed projects by pledged interceptable revenues ranges from about 9.8x to nearly 51x debt service.

Proven strong state oversight of the service provision and financial performance of borrowers also supports the rating. The state can replace underperforming providers. Furthermore, the outcome of a bankruptcy of a previous borrower (FEGS), in which bondholders were not impaired and invoking the intercept was not necessary, demonstrated the state's commitment to the smooth functioning of the program. The role of DASNY, a large and sophisticated conduit issuer, in the financing also provides support to the rating.

RATING OUTLOOK

The bonds carry the stable outlook of the State of New York, reflecting its adequate liquidity, growth of formal and informal reserves, and continued control of spending growth. The outlook also reflects our expectation that the state will build on its improvements in fiscal management, close budget gaps largely with recurring solutions and contain its structural fiscal imbalance.

FACTORS THAT COULD LEAD TO AN UPGRADE

- State rating upgrade

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Downgrade in state general obligation or DASNY OPWDD intercept program rating

- Significant decrease in state or federal commitment to fund services for the developmentally disabled

LEGAL SECURITY

The intercept program is authorized by state statute, and the various parties agree to it through the loan agreements between DASNY and borrowers, and an intercept acknowledgement between DASNY and the Office for Persons with Developmental Disabilities (OPWDD). Under state law, borrowers issuing bonds through DASNY can assign state revenues to a trustee or to DASNY. The intercept mechanism is in place to capture state funds and ensure debt service payments are made.

If borrowers fail to make monthly payments to the trustee pursuant to their DASNY loan agreements, DASNY or the trustee will notify OPWDD to intercept funds due to the borrower. A half-MADS debt service reserve is available to support payments. Given the loan payment schedule and statements by officials that it could take 6-8 weeks to operationalize the intercept, it is possible that the reserve fund would have to cover at least one debt service payment in the event of a borrower default.

Providing additional bondholder security, DASNY requires that it be assigned a first lien mortgage on facilities, furniture and fixtures, and the Authority is required to assign such mortgages to the trustee if there is a draw on the debt service reserve fund. Leased properties require a collateral assignment of the lease to DASNY which may be reassigned to a new provider in case of borrower default, and properties that have shares in cooperatives must enter into cooperative collateral documents to which the boards must consent.

Planned borrowers in this transaction include Developmental Disabilities Institute, Inc, Eden II School for Autistic Children, Inc. d/b/a Eden II Programs, Mercy Home for Children, Inc., Services for the Underserved, Inc/SUS-Development Disabilities Services, Inc., United Cerebral Palsy of NYC d/b/a Adapt Community Network, and Young Adult Institute, Inc.

USE OF PROCEEDS

Proceeds of the Series 2019 A-1 and A-2 Taxable bonds will be used to finance or refinance the acquisition, construction, renovation, furnishing and equipping of certain facilities of the borrowers for the provision of services to people with developmental disabilities or other special needs.

PROFILE

New York State is the 4th largest US state by population. Located in the Northeastern US, New York has a large and diverse economy with high per capita income at 125% of the US average and gross state product of $1.607 trillion.

METHODOLOGY

The principal methodology used in these ratings was State Aid Intercept Programs and Financings published in December 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Marcia Van Wagner
Lead Analyst
State Ratings
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Matthew Butler
Additional Contact
State Ratings
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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