Fitch Rates Colorado Water Authority, CO's 2009A Clean Water Revs 'AAA'; Outlook Stable

Fitch Ratings assigns an 'AAA' rating to the Colorado Water Resources and Power Development Authority, CO's (the authority) approximately $59 million clean water revenue bonds 2009 series A. Bond proceeds will be loaned to two governmental entities for wastewater treatment facility improvements. The bonds are scheduled to sell competitively on Oct. 28, 2009. Fitch also affirms the 'AAA' rating on the authority's approximately $430.5 million of outstanding senior clean water revenue and $161.4 million subordinate wastewater revenue state revolving fund (SRF) bonds. The Rating Outlook is Stable.

The 'AAA' rating is based on the high levels of reserves from federal SRF capitalization grants, which generate investment earnings that are used to subsidize local borrower loans, the primary source of security for the bonds. In addition to generating interest earnings, the reserves also provide security to bondholders in the event loan repayments are insufficient to cover debt service on the bonds. The clean water state revolving fund (CWSRF) and the drinking water state revolving fund (DWSRF) are cross-collateralized, meaning surplus revenues from each SRF program are available to cure deficiencies in the other. This effectively reduces the risk of a default to bondholders of either fund.

All loans have separate reserves held in the matching accounts, which are de-allocated as loans amortize. De-allocated funds can be used to cure loan defaults by any borrower within either the CWSRF or DWSRF. As of Sept. 15, 2009, reserve balances totaled approximately $237 million, or 40% of outstanding SRF bonds. Given the high degree of overcollateralization, the pool is able to withstand 48% loan repayment defaults over the next four years without interruption to senior or subordinate debt service payments.

The loan pools are diverse, with a combined 160 participants. While the top 10 borrowers account for 33% of the portfolio, the largest single borrower, City of Englewood, is only 5.5%. Fitch estimates that at least 44% of outstanding loan principal is to borrowers with investment grade characteristics. Underlying loan provisions are strong with the vast majority of all loan principal secured by water and/or wastewater pledges or general obligation pledges. Reserve earnings allow for loans to be made at interest rates of 2.5% or subsidized at 20% below expected market rates.

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