OREANDA-NEWS. Fitch Ratings has assigned an 'AAA' rating to the following bonds issued by the New Jersey Environmental Infrastructure Trust (NJEIT or the Trust):

--Approximately $24.5 million environmental infrastructure bonds, series 2016A-1 (green bonds);
--Approximately $57.9 million environmental infrastructure refunding bonds, series 2016A-R1 (2008A Financing Program);
--Approximately $65.9 million environmental infrastructure refunding bonds, series 2016A-R2 (2010B Financing Program).

Series 2016A-1 bond proceeds will be used to finance certain water and wastewater system improvement projects in the state (deemed to be environmentally beneficial), to fund capitalized interest, and to pay for the costs of issuance. The series 2016A-R1 and 2016A-R2 bonds will be used to refund certain previously issued series of bonds for interest savings and to pay costs of issuance. The bonds are expected to price via competitive bid on or around May 10.

In addition, Fitch affirms the following outstanding bonds:

--Approximately $1.1 billion environmental infrastructure bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from certain loan repayments from interest-bearing loans made directly from bond proceeds (trust loans) and zero-interest loans made primarily from federal capitalization grant and state match amounts (fund loans). In addition, certain bonds issued prior to 2007 also are payable from amounts held in debt service reserve funds (DSRFs).

KEY RATING DRIVERS

ROBUST FINANCIAL STRUCTURE: Fitch's cash flow modeling demonstrates that NJEIT's Environmental Infrastructure Bond Program (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).

HIGHLY RATED BORROWER POOL: Approximately 84% of the combined trust and fund loan pool is estimated to be investment grade (versus a Fitch 'AAA' median of 70%). Loan provisions are strong, with the majority of loan principal secured by general obligation pledges.

ABOVE-AVERAGE POOL DIVERSITY: The pool is more diverse than comparable municipal loan programs rated by Fitch. The pool consists of 319 borrowers, with the top 10 participants representing approximately 39% of the total portfolio (versus a Fitch 'AAA' median of 55%).

STRONG PROGRAM MANAGEMENT: NJEIT maintains sound underwriting and loan monitoring procedures as evidenced by the fact that NJEIT has never experienced a borrower default in the loan portfolio secured by the master program trust agreement.

RATING SENSITIVITIES

REDUCTION IN MODELED STRESS CUSHION: Significant deterioration in aggregate borrower credit quality, increased pool concentration, or increased leveraging resulting in the environmental infrastructure bond 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

Through the program, NJEIT provides loans to local government, and private borrowers for certain eligible water and wastewater system projects within the state. Under the program's cash flow-based structure, bondholders are protected from potential losses primarily by pledged loans made in excess of bond debt service (overcollateralization), as further described below.

With respect to NJEIT's current and recent 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.

ROBUST FINANCIAL STRUCTURE

Fitch measures the financial strength of NJEIT's and other state revolving funds (SRFs) by calculating each program's asset strength ratio (PASR). The PASR includes the sum of the total scheduled repayments and reserves divided by total scheduled bond debt service. The trust's PASR is 2.2x, which is considered strong in comparison to Fitch's 2015 'AAA' median PASR 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 24% as produced by the PSC. The rating stress hurdle is calculated based on overall pool credit quality as measured by the rating of underlying borrowers, size, loan term, and concentration.

ENHANCEMENT PROVIDED PRIMARILY BY OVERCOLLATERALIZATION

Program bondholders are protected from losses primarily by overcollateralization. On an annual basis, pledged cash flows excluding carry-forward surpluses overcollateralize bond debt service by a minimum of 2.0x until the very last year of the program's life, at which point overcollateralization decreases to 1.6x. These levels compare favorably to Fitch's 'AAA' median for minimum annual loan-to-bond debt service coverage, which is 1.3x.

In addition, certain bonds issued before 2007 are protected from losses by DSRFs, which were initially funded by a combination of federal capitalization grants, matching state contributions, and/or excess loan repayments. In aggregate, these DSRFs total approximately $86 million.

The DSRF for each applicable bond series is maintained at the least of maximum annual debt service, 125% of average annual debt service, or 10% of original bond proceeds. Because the DSRFs are only pledged to certain series of bonds, Fitch's cash flow model results described previously afforded no credit to the DSRF balances.

LOAN POOL MODERATELY DIVERSE, HIGHLY RATED

The combined loan pool is composed of 319 borrowers. In aggregate, the top 10 borrowers represent 39% of the pool versus Fitch's 'AAA' median level of 55%. Middlesex County Utilities Authority and Camden County Municipal Utilities Authority (neither rated by Fitch but assessed to be of strong credit quality) are the two largest participants, making up about 5.9% and 5% of the pool, respectively. The remaining top 10 borrowers range from 2.5% to 4.5% in size. Based on the characteristics described above, Fitch views the loan pool as having above-average diversity in comparison to other similar 'AAA' rated programs.

Pool credit quality is strong with approximately 84% of the loans held by investment-grade borrowers (measured by publicly available ratings of the same security and lien). The program's loan security is also solid, with 90% of loan principal backed by direct or indirect general obligation pledges and the remaining 10% backed by water and/or sewer revenue pledges.

STRONG PROGRAM MANAGEMENT AND UNDERWRITING

NJEIT is operated under a partnership with the New Jersey Department of Environmental Protection. Underwriting policies require that each borrower carry an investment-grade rating or otherwise satisfy certain other conditions such as providing a letter of credit from a suitably rated institution, as outlined by the credit policy. Management continues to refine its well-documented underwriting policies as well as its technological infrastructure. Fitch views these refinements as credit positives.

Borrower repayments are due at least one month prior to bond payment dates. NJEIT has the power to intercept state aid to cure SRF loan repayment defaults otherwise due to borrowers. If a borrower is 30 days late in its repayment obligations, NJEIT may direct the state treasurer to withhold state aid payments and forward such payment.

NJEIT maintains formal procedures in monitoring loan performance. Borrowers are required to provide audited financials annually for review. To date, there have been no loan defaults by any borrowers in the pledged trust portfolio.