DALLAS - Fitch Ratings has placed two state loan pool bond programs on its negative ratings watch based on their subordinate-lien surety bonds from MBIA Insurance Corp. and Ambac Assurance Corp.
The Oregon Bond Bank, whose debt is rated AA by Fitch, and the New Mexico Finance Authority, rated AA-minus, face an analysis of their underlying credit strength.
"In doing so, Fitch will rely on its internal assessments of the guarantors, other agencies' opinions, and other market views," according to a Fitch advisory.
Analyst Adrienne Booker said the listing was based on the agency's recent withdrawal of its ratings on both MBIA and Ambac. The review is likely to take 30 to 45 days, she said.
MBIA and Ambac have lost their triple-A ratings due to the impact of the subprime mortgage crisis.
Administered by Oregon Economic and Community Development Department, the Oregon Bond Bank funds infrastructure loans to local governments for community facilities, water and wastewater, and special facilities.
Each loan carries 80% of funding from bond proceeds. The remaining 20% comes from state lottery revenue, the bond bank's main source of capital. Both loans are pledged as security for debt service, as well as the repayments from direct loans made during the initial institution of the bond bank.
The New Mexico Finance Authority, created in 1992, provides low-cost funds and technical assistance to local governments. Loans typically go to capital projects with a duration of three years or longer.
Chip Pierce of Western Financial Group, who serves as financial adviser to both bond pools, said both are on solid financial footing, despite the Fitch advisory.
"It's just sort of a shot over the bow," Pierce said. "We're working with Fitch to address their concerns. I think it's important to note that both of these programs are rated double-A by all three rating agencies. I don't think you get into the double-A category if there's any expectation that you would ever draw on your reserves."
The Oregon Bond Bank carries a rating of AA from Standard & Poor's and Aa3 from Moody's Investors Service.
The NFMA's senior-lien ratings are AA from Standard & Poor's and Aa2 from Moody's.
Pierce said the chances of either bond pool calling on the insurers to cover a position are extremely unlikely and that neither issuer sees an immediate need to replace Ambac or MBIA.
"There's been no question about MBIA's or Ambac's ability to make payments based on the surety," Pierce said. "You've got two companies that are both investment grade."
