S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Cross Sector Criteria1996, with the inclusion of the Safe Drinking WaterAct, the breadth of projects funded using thisrevolving fund vehicle expanded to include potablewater-related projects as well. SRFs are consideredto be the strongest municipal pools, as programadministrators, along with associated state environmentaland health agencies, usually have significantregulatory powers with which to compel participantcompliance. In addition, programs enjoy large equitypositions due to state and federal contributionsand the relative inability of states to raid these fundsfor other purposes.Many state revolving fund programs have implementedcross collateralization features betweentheir clean water and drinking water programs toenhance credit quality. If Standard & Poor’s hasdeemed the method effective through an analysis ofthe flow of funds and timing of payment releases,then stressed default rates will be determined as ifall participants were part of one large program,even if multiple indentures are involved, resulting inlegally separate pledges. Such mechanisms, however,can make cash flow analyses more difficult, asrevenue streams under different indentures may besubject to severe stresses at different points in time.Determining what period over the life of the combinedprogram is most susceptible to participantdefaults may therefore prove extremely difficult,and a more incremental cash flow analysis mayprove useful. Presenting cash flows on an incrementalbasis, however, does not require the re-estimationof pool stressed default rates on an incrementalbasis as well. Standard & Poor’s analysts will assistissuers in determining what analyses are needed ormost appropriate.Because of the stability and strong state and federalprotection associated with these programs,Standard & Poor’s may give credit for other programmaticfunds available to cure defaults, eventhough they may not be part of the trust estatedirectly securing the bonds. For these funds to beconsidered in the analysis, the program should havewritten policies in place that provide for the timelytransfer of these other funds to replenish bond dedicatedreserve draws once drawn upon. Standard &Poor’s will review the asset quality and liquidity ofthese funds as well as the program’s treasury managementpractices as part of its ongoing surveillanceto ensure that sufficient funds remain available toreplenish draws.Although Standard & Poor’s may give credit toother funds available, it still expects that a majorityof funds needed to maintain the rating will bepledged to bond holders and invested accordingly.Should this not be the case, the analysis would shiftaway from the focus on the pledged loan portfolioTable 1 Municipal Pool/CDO SectorsSector Sector Code Recovery Range (%)GO State of obligor 80-100General fund pledge/lease appropriation State of obligor 70-85Moral obligation State of obligor 40-55Water-sewer/solid waste State of obligor 80-100Sales/income tax/gas tax State of obligor 80-100Other special tax State of obligor 70-85Tax increment State of obligor 70-85Spec assessment State of obligor 70-85Public power/gas State of obligor 70-85Charter schools State of obligor 40-55LOCs Industry code 40-55IRBs Industry code 40-55Public universitites State of obligor 80-100Private schools and universities Industry code 40-55Health care Industry code 40-55Other 501C3s Industry code 40-55Housing State of obligor VariesAirports Industry code 70-85Toll roads/parking/garvees/ports/transit Industry code 70-8546 Standard & Poor’s Public Finance Criteria 2007