N🟁N

NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings assigns an 'AA-' rating to the following State of New York Municipal Bond Bank Agency (MBBA) bonds:

--$281 million special school purpose revenue bonds (prior year claims - The City of New York), 2012 series A.

The bonds, which are being issued for refunding purposes, are expected to sell via negotiation the week of Sept. 24, 2012.

The Rating Outlook is Positive.

KEY RATING DRIVERS

LINK TO NEW YORK STATE CREDIT: State education aid that secures the bonds requires annual appropriation by the New York State legislature. Therefore, the rating is linked to the general obligation (GO) credit of the State of New York, currently rated 'AA' with a Positive Outlook by Fitch, and on par with the rating assigned to state appropriation debt.

STRONG STATE SUPPORT OF EDUCATION: Appropriation risk is minimal given the constitutional mandate for, and strong history of, state support for education. State aid to New York City of $8.4 billion in fiscal 2013 compares to maximum annual debt service (MADS) of about $40 million on the bonds.

STRUCTURAL PROTECTIONS STRENGTHEN CREDIT: Debt service is funded from a direct payment by the state comptroller, and the timing mechanisms allow substantial cushion for late state budgets or delays in scheduled state payments.

WHAT COULD TRIGGER A RATING ACTION

--Changes in New York state's GO rating, to which this rating is linked.

SECURITY

Bonds are secured by the diversion of annually appropriated state education aid by the state comptroller to the agency for the purpose of paying bond debt service.

CREDIT PROFILE

Legislation enacted in 2002 and in 2003 allowed the MBBA to issue bonds for the purpose of fully funding prior year claims owed to special school purpose municipalities (i.e. certain state aid that a school district was entitled to receive under a set formula less what was actually apportioned). The legislation established a mechanism whereby annually appropriated state education aid to participating school districts is diverted by the state comptroller for the purpose of paying bond debt service.

Four series of these bonds were issued in 2003 under the special school purpose prior year claims resolution. Proceeds went to the city of New York, the cities of Buffalo and Rochester, the Niagara Falls City School District, the Ballston Spa Central School District, the Delhi Central School District, the Enlarged City School District of the City of Troy, and the Utica City School District.

The current offering refunds for savings the bulk of the outstanding bonds that were issued for New York City (2003 series C). Payment of the two maturities of 2003C bonds that will not be refunded (Dec. 1, 2012 and June 1, 2013), which have a senior claim on school aid, will be funded from already intercepted aid and released reserve funds, respectively. The series 2012 bonds are fixed rate, with a final maturity of Dec. 1, 2022.

The agency is adopting a new resolution for the 2012A bonds and an amended special school purpose agreement is being executed. The memorandum of understanding among the state education department, state comptroller, and the agency, which details procedures for debt service funding, is also being amended for the sale. The debt service reserve funding requirement is being eliminated; under the 2003 resolution, a debt service reserve was funded at 50% of MADS. This change does not affect the rating on the bonds due to very strong debt service coverage and protections inherent in the timing mechanism. The comptroller begins to intercept aid for the Dec. 1 principal and interest payment on Aug. 25, and for the June 1 interest payment on Dec. 2 of the prior year.

The 2003 and 2012 resolutions require New York City to execute a special school purpose agreement with the agency. The agreement requires the city to waive all rights to annual state aid in an amount equal to debt service and provides for the direct payment (diversion) of school aid in an amount equal to debt service by the comptroller of the state to the agency prior to the payment date on outstanding bonds. Neither the agency nor the city may terminate the agreement, the term of which matches the life of the bonds.

Debt service on the bonds is a negligible portion of state aid to the city. In fiscal 2012 the city received $8.4 billion in school aid. Projected MADS on the series 2012 bonds is $40 million. Other debt of the city (including debt issued for school purposes and specifically New York City Transitional Finance Authority building aid revenue bonds) also have a claim on some or all of interceptable funds, and other such programs could be created in the future; however, due to the abundance of coverage as well as the strong credit quality of the city (GO bonds rated 'AA' with a Stable Outlook) this is not a credit concern.

For more information on the state's general credit, see Fitch's press release 'Fitch Affirms New York State GO Bonds at 'AA'; Outlook Positive' dated June 11, 2012, available on the Fitch web site at '[ www.fitchratings.com ]'.

Additional information is available at '[ www.fitchratings.com ]'.The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', Aug. 14, 2012;

--'U.S. State Government Tax-Supported Rating Criteria', Aug. 14, 2012;

--'Rating Guidelines for State Credit Enhancement Programs', June 19, 2012.

Applicable Criteria and Related Research:

Rating Guidelines for State Credit Enhancement Programs

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681239 ]

Tax-Supported Rating Criteria

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015 ]

U.S. State Government Tax-Supported Rating Criteria

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033 ]

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: [ HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS ]. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '[ WWW.FITCHRATINGS.COM ]'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.