LOS ANGELES — Idaho's Housing & Finance Association bonds were downgraded by Moody's Investors Service ahead of plans to price $37.2 million Wednesday.
The outlook is stable.
The downgrade reflects shrinking margins and overall high risk profile, according to the Tuesday Moody's report.
The $25 million non-AMT Single Family Mortgage 2016 Series A-1 bonds and $12.2 million Single Family Mortgage Bonds 2016 Series A-2 Class AMT term bond pricing today were downgraded a notch to Aa1.
The one-notch downgrade from Aaa(sf) also applied to $91 million of outstanding single family mortgage Class I parity bonds exclusive of the 2009 Series A Variable Rate Bonds. The $49 million Series 2009A Class I bonds, which are variable rate obligations, were downgraded from Aa1(sf) to Aa2(sf). And roughly $28 million in outstanding single family mortgage Class II bonds were downgraded from Aa2(sf) to Aa3(sf).
The rating distinction between the Series 2009 A Class I bonds and other Indenture Class I bonds is due to a difference in pledge, according to the report.
The Series 2016 A Class I Bonds benefit from the subordination of Class II Bonds while the Series 2016 A Class II Bonds are expected to benefit from the additional backing of IHFA's full faith and credit pledge, according to Moody's.
The rating agency affirmed a VMIG 1 rating on outstanding variable rate demand bonds.
IHFA provides affordable housing to people with limited incomes by funding the purchase and servicing of single family home mortgages loans.
The bonds are issued under the General Indenture of Trust, dated Feb. 1, 2003.
The bonds are limited obligations of the IHFA secured by mortgage revenues, investment earnings, reserves, and other trust funds pledged under the Indenture. IHFA has no legal or moral obligation to use its general fund to make debt service payment on Class I Bonds.
The proceeds of the Bonds will be used to purchase mortgage backed certificates guaranteed by the Government National Mortgage Association (Ginnie Mae) and to refund certain previously issued series of bonds.
Moody's also said it expects to assign a long-term and a short-term rating to 2016 Series A-3 Variable Rate Class I Bonds and 2016 Series A-4 Variable Rate Class II Bonds to be issued at a later date.
"The rating assignment reflects adequate program asset-to-debt ratio, slowly improving mortgage loan portfolio, and management active role of addressing the challenges facing its programs," Moody's wrote.
Offsetting these strengths are high mortgage loan prepayments that contribute to negative arbitrage and shrinking of the balance sheet, a high level of variable rate debt and related non-callable swaps that limit financial flexibility, and high concentration of third party agreements in Barclays Bank PLC that exposes it to shifts in Barclays Bank credit quality.
"The outlook on the Bonds is stable based on our expectation that the current issue together with the previous one (issuance of Series 2015A) will help improve the loan portfolio's profile and maintain adequate asset-to-debt ratios," Moody's analysts wrote. "An upgrade is not anticipated in the near term as we need to see a demonstrated trend of improving financial metrics, particularly profitability, and improving risk profile."
