N@N

AUSTIN, Texas--([ BUSINESS WIRE ])--Fitch Ratings has affirmed its 'AAA' rating on the following Maryland Water Quality Financing Administration (MWQFA) revenue bonds:

--Approximately $20.4 million outstanding revolving loan fund revenue bonds, series 2005A.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by loan repayments payable from local government entities, reserves, and investment earnings.

KEY RATING DRIVERS

HIGHLY-RATED LOAN POOL: Underlying borrower credit quality is strong in comparison to similar programs, with at least 96% of the pool exhibiting investment-grade characteristics. Additional protection is afforded through a state-aid intercept mechanism.

STRONG FINANCIAL STRUCTURE: The program's overcollateralization and reserves provide enough credit enhancement to withstand loan defaults of up to 100% (the default tolerance) of the pool over the next four years. This is in excess of Fitch's 'AAA' stress scenario (10.2%) for a pool of this size and credit quality.

POOL CONCENTRATION: The pool's 10 largest participants represent 89.4% of the portfolio. As the 2005A bond indenture is expected to be used only for refundings, Fitch expects this concentration to increase over time. Increased pool concentration could result in the risk of a single-borrower default causing a debt service payment shortfall. Fitch views this risk as largely mitigated based on the high credit quality of the portfolio combined with the availability of overcollateralization and reserves.

SOLID PROGRAM MANAGEMENT AND UNDERWRITING: MWQFA maintains strong loan monitoring guidelines exhibited by the fact that the program has never experienced a payment default to date.

CREDIT PROFILE

Cashflow modeling demonstrates that the program can continue to pay bond debt service even with loan defaults of 100% over a four year period. This is in excess of Fitch's 'AAA' stress (10.2%), which is derived based on the aggregate credit quality of the program's pledged loan pool.

The pledged loan pool is composed of 28 remaining borrowers. Of those remaining, at least 96% are estimated to exhibit investment-grade credit quality. Baltimore County (general obligation debt rated 'AAA' by Fitch) is the largest borrower, representing 22% of the total pledged loan pool.

Additional credit enhancement is provided by a state aid intercept used to cover any potential borrower defaults of general obligation-backed loans. The intercept has never been utilized, as there have been no borrower defaults or delinquencies since the inception of the program. Approximately 87% of all loan principal is secured by general obligation pledges.

MANAGEMENT

The Maryland Department of the Environment (the department) is responsible for all major environmental programs in Maryland. The department manages several regulatory programs including water pollution control, drinking water control, air and radiation control, hazardous and solid waste management, sediment control, and storm water management. MWQFA was created in 1988 as a unit of the department to assist local governments in financing wastewater facilities through the use of the revolving loan funds.

STRUCTURAL CHARACTERISTICS

All pledged loan repayments are projected to provide 1.5x to 2.3x coverage through bond maturity in 2015. Additional parity bonds and subordinate obligations may be issued provided that MWQFA certifies that projected revenues will cover annual debt service by 1.2x. While the MWQFA 2005A bond indenture remains open, it is expected to be used only for refundings. The MWQFA plans to issue all future wastewater and any drinking water revolving loan fund revenue bonds under its 2008 indenture (revenue bonds rated 'AAA' by Fitch).

In the event that loan repayments and investment earnings are insufficient to meet debt service, reserve fund moneys will be used to cover the deficiency. The reserve was funded by bond proceeds and sized at the lesser of maximum annual debt service or 10% of the original bond proceeds. As of May 31, 2012, the fully funded reserve totaled approximately $9.09 million, or 44.5% of total outstanding debt service. The debt service reserve fund is currently invested in guaranteed investment contracts primarily with JP Morgan Chase and Co. (rated 'AA-/F1+' by Fitch).

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:

--'Revenue-Supported Rating Criteria' (June 12, 2012);

--'State Revolving Fund and Leveraged Municipal Loan Pool Criteria' (May 21, 2012);

--'Rating Guidelines for State Credit Enhancement Programs' (June 19, 2012);

--'Counterparty Criteria for Structured Finance Transactions' (May 30, 2012).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681015 ]

State Revolving Fund and Leveraged Municipal Loan Pool Criteria

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=677858 ]

Rating Guidelines for State Credit Enhancement Programs

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

Counterparty Criteria for Structured Finance Transactions

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678938 ]

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.