LOS ANGELES -- Fitch Ratings on July 16 affirmed its AAA long-term rating and F1-plus short-term rating on the credit enhancement program sponsored by the California Public Employees' Retirement System.

The outlook is stable.

CalPERS' credit enhancement program provides letters of credit and standby bond purchase agreements for municipal issuers. CalPERS is unconditionally obligated to provide liquidity and credit enhancement from available short- or long-term assets, according to the Fitch report.

CalPERS' CEP currently generates additional income for the pension system by providing a total of $1.3 billion in credit and liquidity support for seven municipal obligors through LOCs and/or SBPAs.

These facilities, which primarily consist of tax-supported and water/wastewater utility pledges, are scheduled to expire by Dec. 13, 2016 or earlier. While the CEP has a maximum allocation limit of $10 billion, management expects that program commitments will not exceed $2.5 billion, according to the Fitch report.

The CEP is an off-balance-sheet component of CalPERS investment portfolio; and Fitch analysts said the program commitments are accounted for as contingent liabilities.

The key rating drivers, according to Fitch, were the mammoth pension fund's low-risk CEP profile with obligors including high-quality credits in California and several other states. In addition, the weighted average maturity of the portfolio may not exceed five years.

It also has a high liquidity cushion with fund assets covering the maximum CEP exposure by a wide margin, even with significant discounting of assets, according to Fitch analysts.

The short-term rating reflects the availability of highly liquid assets that could immediately cover draws on the program.

The overall funded status of the pension fund is considered adequate, even after applying Fitch's more conservative discount rates and assessment of fund asset value, according to the report.

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