Fitch Ratings assigns a long-term ‘AA+’ rating for the following Maryland CDA (Maryland CDA, or MCDA) housing revenue bonds:
–$3.7 million, 2014 Series C.
Additionally, Fitch affirms approximately $261.6 million of Maryland CDA housing revenue bonds at ‘AA+’ (see full list below) out of the approximately $282.2 million (at April 1, 2014) of total parity debt outstanding under the Nov. 1, 1996 general bond resolution. The difference between the outstanding bond amount and the total debt outstanding under the resolution reflects the fact that Fitch did not start rating the indenture until 2004.
The Rating Outlook for the bonds is Stable.
The trust indenture pledges all the mortgages in the loan portfolio consisting of multi-family, single-family and group homes as well as the funds pledged under the legal provisions of the resolution.
KEY RATING DRIVERS
PORTFOLIO LARGELY GUARANTEED OR PARTIALLY INSURED: As of March 31, 2014, approximately 95% of the multi-family portfolio is largely guaranteed by the following entities: Ginnie Mae, Fannie Mae and Freddie Mac, or partially insured by FHA risk-share.
SUFFICIENT OVER-COLLATERALIZATION: On a cash flow basis, the assets under the resolution show a minimum asset parity ratio of 108.4%, although Maryland CDA has the right to withdraw excess assets. However, by practice, Maryland CDA continues to leave sufficient over-collateralization in the indenture.
CAPABLE MANAGEMENT OVERSIGHT: Maryland CDA has demonstrated strong programmatic oversight capabilities and has had a long successful history of administering multi-family programs.
INDENTURE CONSIDERATIONS: The rating is constrained to its current level due to the fact that the issuer has the ability to withdraw excess assets and to include various types of loans other than first lien mortgages.
REMOVAL OF ASSETS: Credit risks to the housing revenue bond portfolio are somewhat remote given its federally insured portfolio and strong over-collateralization. This over-collateralization mitigates risks from its loan portfolio. However, removal of assets may present negative rating pressure.
The 2014 series C bonds are the 49th series of bonds to be sold under a general bond resolution adopted on Nov. 1, 1996 and are on parity with all bonds issued previously under the indenture. The $3.7 million 2014 series C bonds will be used to finance, in part, the development known as Samuel Chase Associates Limited Partnership, with credit enhancement under the FHA risk-share program providing a 75/25 split on the risk of the projects.
The portfolio consists mainly of 53 multi-family residential developments which, as of March 31, 2014, had an aggregate outstanding mortgage balance of $267.1 million. In addition, the portfolio has single-family residences and group homes which account for $8.2 million (3.0% of the portfolio) in loans. As of March 31, 2014, 95% of the portfolio was guaranteed by a governmental entity such as: Ginnie Mae (59%), Fannie Mae (4%), Freddie Mac (1%), and insured under the FHA risk-share insurance program (31%). Going forward, management expects all new projects will incorporate a 75/25 split under the FHA risk-share program. All of these governmental entities are currently linked to the U.S. sovereign which is currently rated ‘AAA’ with a Stable Outlook by Fitch. In addition, the Maryland Housing Fund (MHF) insures 2.0% of the loan portfolio while 0.7% remains uninsured. In addition to the 2.0% covered by MHF, the MHF is backing the risk-share amount that is not covered by HUD, totaling approximately $33 million.
More than 54% of the multi-family units in the portfolio receive rental assistance payments under Section 8 of the U.S. Housing Act of 1937, interest-rate subsidies under Section 236 of the National Housing Act, or subsidies from the U.S. Department of Agriculture. The remaining 46% of the units do not receive rental or interest-rate subsidies.
Credit concerns are related to the bond resolution allowing various types of loans including uninsured and second lien mortgages. These concerns are mitigated by the current loan portfolio being 95% guaranteed or insured by a U. S. government entity, management demonstrating strong programmatic oversight, and the consistent financial performance of the portfolio.
In addition, Fitch affirms the following ratings:
–MCDA Housing Revenue Bonds, 2004 Series B, C, & D at ‘AA+’;
–MCDA Housing Revenue Bonds, 2005 Series A, B, & C at ‘AA+’;
–MCDA Housing Revenue Bonds, 2006 Series A, B, C, & D at ‘AA+’;
–MCDA Housing Revenue Bonds, 2007 Series A, B, & C at ‘AA+’;
–MCDA Housing Revenue Bonds, 2008 Series A, B, C, & D at ‘AA+’;
–MCDA Housing Revenue Bonds, 2009 Series A at ‘AA+’;
–MCDA Housing Revenue Bonds, 2012 Series A, B, & D at ‘AA+;
–MCDA Housing Revenue Bonds, 2013 Series A, B, C, D, E and F at ‘AA+’;
–MCDA Housing Revenue Bonds, 2014 Series A & B at ‘AA+’.
Applicable Criteria and Related Research:
–‘Rating Criteria for Pooled Multifamily Housing Bonds’ (Dec. 12, 2013);
–‘Revenue-Supported Rating Criteria’ (June 16, 2014).
Applicable Criteria and Related Research:
Rating Criteria for Pooled Multifamily Housing Bonds
Revenue-Supported Rating Criteria