Fitch Rates Maryland's Revolving Loan Fund Refunding Revenue Bonds 'AAA'

CHICAGO -- In the course of routine surveillance, Fitch Ratings affirms the 'AAA' rating on Maryland Water Quality Financing Administration's (the administration, or MWQFA) $47.6 million of outstanding revolving loan fund revenue bonds, series 2005A. The Rating Outlook is Stable.

While the administration's 2005A bond indenture remains open, it is expected to be used only for refundings. The administration plans to issue all future wastewater and any drinking water revolving loan fund revenue bonds under its 2008 indenture (revolving revenue bonds currently rated 'AAA' by Fitch).

The 'AAA' rating of MWQFA's outstanding series 2005A bonds is based on the highly rated loan pool and the strong default tolerance due to excess loan repayments and a debt service reserve fund which secure the bonds. The pool structure allows the bonds to withstand borrower loan defaults of 54.5% through final bond maturity (2015). This default tolerance exceeds what Fitch would expect for a pool of this credit quality, size and diversification in an 'AAA' stress scenario.

MWQFA structures the loan pool with a required 1.2 times (x) cash flow coverage level and a debt service reserve. The reserve is funded by bond proceeds and sized at the lesser of maximum annual debt service or 10% of the original bond proceeds. As of June 30, 2009 the fully funded reserve totaled $11.7 million, approximately 25% of total bond principal outstanding. The debt service reserve fund is currently invested in money market funds and guaranteed investment contracts with JP Morgan Chase (long term Issuer Default Rating rating of 'AA-', Stable Outlook by Fitch).

Additional credit enhancement to the bonds includes a state intercept to cover any potential borrower defaults of general obligation (GO) backed loans. The intercept has never been utilized, as there have been no borrower defaults or delinquencies since the inception of the CWSRF program.

The pledged loan pool comprises 35 borrowers. At least 91% of the borrowers are estimated to exhibit investment-grade credit quality. Baltimore County (GO bonds rated 'AAA') is the largest borrower, representing 19% of the total pledged loan pool. Frederick County (GO bonds rated 'AA+') is the second largest borrower, representing 14% of portfolio. The pool's 10 largest participants represent 85% of the portfolio.

Underlying loan provisions are strong with 85% of all loan principal secured by GO pledges. All pledged loan repayments provide 1.43x to 2.25x coverage through bond maturity in 2015.

Additional information is available at 'www.fitchratings.com'.