Fitch Ratings has assigned a 'AA+' rating to the following
The Rating Outlook is Stable.
Analytic Conclusion
The 'AA+' rating reflects the program's strong asset quality, a key driver, reflected by the increase in the MBS portion of the portfolio, as well as the program's continued financial strength demonstrated by the fiscal 2022 results and 2022 cash flow asset parity levels. The administration continues to finance single-family new issuance through the purchase of MBS, which has led to a continued increase in the portfolio's MBS composition.
As government sponsored entities (GSEs), the ratings of
SECURITY
The bonds are special obligations of the issuer, payable from the revenues and assets pledged under the bond resolution. The assets currently include single-family whole loans, mortgage-backed securities guaranteed by the
KEY RATING DRIVERS
Strengthened Asset Quality (Strong): The strong assessment reflects the significant increase in the MBS portion of the portfolio to
The single-family whole loan portion of the portfolio has correspondingly decreased to
Strong Cash Flow Asset Parity (Strong): The RRB program has demonstrated strong asset parity, even when Fitch stress scenarios are assumed. The cash flow projections, which incorporate various prepayment speeds, interest rate stresses, and a loan loss assumption, show a starting parity of 119% after adjusting for non-cash items and maintain a minimum of 116% asset parity for the remaining term of the bonds. MCDA's management team has continued to maintain the credit quality of the program by keeping sufficient excess collateral in the program.
Financial Resources and Program Structure (Midrange): The program remains financially stable as illustrated in recent financial performance. The program's financial asset parity has reported a decrease to 115% in 2022 from 121% in fiscal 2021 and a decline in net position to
The parity is sufficient for the rating. Net operating margin remains strong and net interest spread (NIS), a key profitability metric, remained stable in fiscal 2022 at 21%. Fitch will continue to monitor the NIS given the MBS spreads and the impact on program profitability. Indenture provisions restrict the release of excess funds, allowing for program funds to be withdrawn to 102% asset parity.
The delinquency rate (60+ days) of the whole loan portfolio reported a decrease to 9% as of
Asymmetric Risk Factors (Neutral): The program is governed by an experienced managerial staff and active board of directors.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A transition towards a 100% MBS portfolio, further strengthening the program's asset quality. With the current issuance additional
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Weakening asset quality with significant increases to the multifamily or whole loan portion of the portfolio, which could also lead to higher delinquencies and loan losses;
Increasing forborne loans and delinquency rates will pressure the rating leading to declines in program retained earnings;
Current cash flow asset parity of over 116% provides sufficient excess assets to withstand stress scenarios. Removal of excess assets could result in negative rating pressure;
Issuer management decisions regarding the bond program that diminish the credit quality that lead to higher loan losses, negative financial performance, and/or a stressed cash flow asset parity ratio that falls below 102%;
Fitch considers the authority to be bankruptcy remote based on its public purposes, predominantly limited recourse debt and its inability under current law to commence a voluntary proceeding under Chapter 9 without legislative or executive approval. A change in this status could lead to a rating change and limit the rating on the single-family program to that of the authority's general obligation debt.
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
CREDIT PROFILE
The 2022 series D bonds will be the 129th series of bonds issued under the RRB program. As of
The 2022 series D bond proceeds will be used for the following purposes: to finance certain previously purchased or expected to be purchased
Date of Relevant Committee
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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