California Department of Veteran Affairs' $1.23 billion of general obligation and revenue debt will remain rated AA-minus by Fitch Ratings, and will also keep a negative outlook.

The rating agency said in a report Monday the outlook is a result of the program's $1.5 million operating loss in fiscal 2012, its fifth consecutive year with a loss.

"Fitch projects that the department has enough assets to absorb projected loan losses," the report said.  "However, if retained earnings are further diminished by increased loan losses, it is highly likely that the remaining amount will not be able to adequately address AA- stress scenarios and maintain the appropriate asset parity ratio for its current rating level."

The department projects annual losses for the next two fiscal year of between $10 million and $12 million, according to the Fitch.

Fitch's outlook impacts $758 million of state general obligation veteran bonds and $472 million of California veteran home purchase revenue bonds.

The rating also reflects the above-average amount of retained earnings in the program, which increase in fiscal year 2012 from the previous year. It was the third straight year of increases due to decreasing bond and loan balances, Fitch said.

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