2009-11-09 23:32:03 -

Fitch Ratings has assigned an 'AA' rating to the $90 million Maine Health and Higher Educational Facilities Authority (the authority) revenue bonds, series 2009A. In addition, Fitch affirms its rating on approximately $1.4 billion of the authority's outstanding reserve fund resolution bonds at 'AA'. The series 2009A bonds are scheduled to price via negotiation during the week of Nov. 16,

2009. Bond proceeds will be used to fund or refinance loans to four nonprofit educational, medical and rehabilitation institutions in Maine. The Rating Outlook is Stable.

The 'AA' rating and Stable Outlook reflect the diversity, low credit risk, and security of loans within the authority's loan pool, a debt service reserve funded at maximum annual debt service (MADS) and backed by the state's moral obligation, a state-aid intercept mechanism additionally backing loan repayments, and a sizable supplemental operating fund. Most of the state's eligible health care and higher education institutions use the authority as their primary borrowing vehicle because it offers participants the lowest cost of capital.

The authority's loan pool consists of 66 borrowers, with moderate single-borrower concentration; the largest, the Maine Health System, represents 15% of the total outstanding portfolio, and the top 10 borrowers account for approximately 63% of the outstanding loan balance.
Approximately 43% of the outstanding loan balances are to hospitals; 13% to higher education institutions; with the remaining 44% outstanding loans spread among mental health facilities, nursing homes, community care retirement communities and social service organizations.

Borrowers in the pool generally do not have public ratings. Among the largest eight borrowers, Fitch estimates that one would be rated in the 'AA' category, three in the 'A' category, and four in the 'BBB' category. In addition to a senior lien on gross revenues and a mortgage on most property and/or financed projects, the loans are backed by a state-aid intercept.

A debt service reserve for all parity debt is funded by bond proceeds at 100% of MADS. After this issue, the debt service reserve will total $118.3 million, or 9% of total bond principal outstanding. The debt service reserve is also backed by a state moral obligation make-up provision if it falls below MADS. Neither the intercept nor the reserve replenishment has ever been utilized. The reserves are invested in highly rated tax-exempt municipal bonds, money market accounts and investment agreements.

The operating fund balance, while not pledged, totals approximately $38 million and may be used instead of the debt service reserve, in the event of loan delinquencies. The operating fund, which is primarily invested in U.S. treasury or agency securities, has grown steadily from administrative fees collected from borrowers. Combined, debt service reserves and operating fund balances will total $156.3 million, or approximately 12% of bond principal outstanding.

Fitch analyzes the default tolerance of the authority's portfolio using a stress test that considers loan credit quality, single-risk concentration, debt service reserves and operating funds and loan payments. Fitch discounts in its analysis approximately $15.3 million of reserves that are held in non-collateralized investment agreements with providers rated below 'AA'. However, the authority's reserves and operating funds are sufficient to pay bondholders if scheduled loan repayments fall short by as much as 30% for four consecutive years, even if the lower quality investment agreements fail to perform and no action is taken by the state to replenish the reserve fund.

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Fitch RatingsAdrienne M. Booker, 312-368-5471, ChicagoDavid
Litvack, 212-908-0593, New YorkorMedia Relations:Cindy
Stoller, 212-908-0526, New YorkEmail: cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com