Fitch Affirms Utah Housing Corp's Single Family (2001 Indenture) Class I & II Bond Ratings
--\$25.2 million 2001 Class I variable rate senior bonds at 'AAA';
--\$0.9 million 2001 Class II fixed rate bonds at 'AA';
The Rating Outlook is Stable.
The bonds are secured by all assets and revenues under the trust indenture, investment earnings, and reserve funds. The assets and revenues of the trust estate secure the Class I and Class II bonds on a senior basis to the Class III bonds which are also backed by a general obligation (GO) pledge of the issuer's assets (rated 'AA-'; Stable Outlook).
KEY RATING DRIVERS
HIGH AMOUNTS OF OVER-COLLATERALIZATION: The 'AAA' and 'AA' ratings reflect the high amount of over-collateralization provided by the debt subordination structure. As of Dec. 31, 2014, the over-collateralization on the Class I and II bonds was 171% and 165%, respectively.
INSURED LOAN PORTFOLIO: The underlying loan portfolio is highly insured, with 100% of the loan portfolio being insured by FHA.
ASSET COMPOSITION: The current underlying assets are comprised of the following: 41% in a loan portfolio with 'AAA' mortgage insurance, 13% in a Wells Fargo Money Market Fund and 45% invested in a guaranteed investment contract (GIC) with Trinity Funding.
VARIABLE RATE DEBT CONSTRAINTS: Approximately 83% of the outstanding bonds are variable rate, in which all are swapped with a synthetic fixed rate. It would be economically disadvantageous to pay off the swaps due to the associated termination fees.
STRONG INDENTURE PROVISIONS: The various supplemental indentures provide for strong over-collateralization and debt service reserves for each class of bonds.
CHANGE IN COMPOSITION OF ASSETS: If the GIC investment continues to grow as a percentage of total assets resulting from additional loan prepayments, the rating may change to reflect the mix of investment assets. Should the composition of assets change to include a greater percentage of 'AAA' insured loans, it would be viewed as a credit positive for the Class II bonds as long as the over-collateralization remains at levels in excess of the indenture provisions.
The 'AAA' and 'AA' ratings reflect the credit quality of the trust estate's collateral, the credit enhancement provided by the debt subordination, and the strong indenture requirements. For information regarding UHC's GO rating, please see the Fitch press release 'Fitch Affirms Utah Housing Corp. Single-Family Bond (2009 Indenture) Ratings; Outlook Stable' dated May 06, 2014 available at www.fitchratings.com.
The indenture has asset parity maintenance provisions and directs revenues to call bonds of that class prior to paying debt service of a junior class. As of Dec. 31, 2014, the over-collateralization (OC) on the Class I and II bonds were 171% and 165%, respectively. While the Class III bonds have an OC of 147%, these over-collateralization levels greatly exceed the minimum asset parity requirements on the indenture. In addition to high OC levels, the indenture has a highly insured loan portfolio which is comprised of 100% FHA-insured loans. This insurance mitigates any concerns over performance of the loan portfolio. While the loan portfolio is highly insured, it makes up only 41% of the asset portfolio with the remaining 59% comprised of investment assets.
Approximately 83% of the outstanding bonds are variable rate and all are swapped to a synthetic fixed rate with two providers: Barclays Bank (rated 'A/F1') and Deutsche Bank (rated 'A+/F1+'). Fitch currently maintains a 'F1' short-term rating on the Class I variable-rate bond based on the liquidity provider backing the bonds, JP Morgan Chase. This liquidity facility is set to expire in May 2017.