New York, October 20, 2022 — Moody’s Investors Service has assigned a rating of Aaa/VMIG 1 to the proposed $30,000,000 Connecticut Housing Finance Authority’s (“CHFA” or the “Authority”) Housing Mortgage Finance Program Bonds, 2022 Series E, Subseries E-2 (Variable Rate) (Social Bonds), (the “Bonds”). Moody’s maintains existing Aaa ratings on all outstanding Housing Mortgage Finance Program Bonds. The outlook on the ratings is stable.
RATINGS RATIONALE
The Aaa long-term rating is based on the high overcollateralization of assets to liabilities, very strong program cash flows, a high percentage of government-insured loans and support from the State of Connecticut through the Housing Mortgage Capital Reserve Fund.
The VMIG 1 short term rating is based on the long-term rating on the parity bonds under the program as well as the short term rating of the liquidity provider, Sumitomo Mitsui Banking Corporation (“Sumitomo Mitsui Bank” or the “Bank”) and the Bank’s obligation under the related standby letter of credit (“SLOC” or “liquidity facility”) to purchase the variable rate demand obligations (“VRDOs”) upon optional or mandatory tender in the event of a failed remarketing or certain other events. The Bank’s current counterparty risk assessment is A1(cr)/P-1(cr) by Moody’s.
RATING OUTLOOK
The stable outlook is based on the strong financial position of the program, the portfolio composition, the active issuer management of the program, the legal provisions and cash flows reviewed.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
N/A – for both the long term and short term ratings.
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
With respect to the long term rating, severe decline in the financial performance of the program that causes the asset-to-debt ratio to drop. However, given the Housing Mortgage Capital Reserve Fund, the rating of the program is unlikely to fall below that of the State.
For the short term rating, a downgrade of the short-term counterparty risk assessment of the Bank and/or a downgrade of the program’s rating.
LEGAL SECURITY
The Bonds are general obligations of CHFA and are secured by revenues and assets pledged under the resolution which consist primarily of interest in first lien mortgages, investments and reserves held with the trustee, and all funds available to the Authority. The program is further secured by a Housing Mortgage Capital Reserve Fund backed by the State of Connecticut, rated Aa3 (stable outlook). Under the terms of this provision, if the capital reserve is funded below its requirement of maximum annual debt service on December 1st of any year, the Chairman of the Authority must certify the amount of the shortfall to the Secretary of the Office of Policy and Management of the State, and the shortfall is deemed appropriated from the general fund of the State, and such amount is allotted and paid to the Authority. Payment on these Bonds is on parity with $4.2 billion (as of June 30, 2022) in HMFP.
The capital reserve fund requirement is equal to maximum annual debt service. The investments in the debt service reserve fund are single family mortgage loans which have been pooled into GNMA, FHLMC and FNMA securities. While the GNMA, FHLMC and FNMA securities provide the highest credit quality to the investments, the use of mortgage loans generates higher revenue earnings than other investments, thereby maximizing earnings on the reserve.
Variable Rate
The Bonds initially are expected to be issued as VRDOs in the weekly rate mode. The Authority may elect to change the interest rate mode on the Bonds to a different period. Upon any such mode change, the Bonds are subject to mandatory tender. In addition, bondholders have rights of optional tender for the Bonds while they remain VRDOs.
The short term rating reflects the liquidity provided by the SLOC with Sumitomo Mitsui Bank and expires upon the earliest of to occur of: (i) the mandatory tender date resulting from the expiration of the SLOC, (ii) conversion of the Bonds to a mode other than weekly, or (iii) earlier termination of the SLOC.
The SLOC provides for purchase by the bank of bonds that are tendered by bondholders and cannot be remarketed. Under certain circumstances the bank can terminate the SLOC or suspend its obligations without notice and will therefore not be obligated to provide funds. These circumstances include any of the following: (1) any principal of or interest on any bond (including bonds purchased by the bank) is not paid when due; (2) certain acts of bankruptcy or insolvency by or involving the Authority; (3) provisions relating to the payment of principal or interest under the SLOC, Bond Resolutions, the Bonds, or the authorizing statute are declared invalid by a court or other competent authority, or the Authority challenges or seeks adjudication that the SLOC, the Bond Resolutions, the Bonds, or the authorizing statute are not valid; or (4) the rating on the Bonds falls below Baa3. Other events of termination become effective only after the bank provides sufficient notice to allow for a mandatory tender of Bonds before the termination date of the SLOC.
USE OF PROCEEDS
The proceeds of the Bonds, along with other available monies under the Resolution, are expected to be used (i) to provide new monies for the financing of single family mortgage loans and agency securities, and (ii) to pay certain costs of issuance.
PROFILE
The Housing Mortgage Finance Program was established in 1972. This indenture is Connecticut HFA’s active single family and multifamily financing program. The proceeds of bonds issued under this indenture are used to finance affordable housing to low and moderate income persons in the State of Connecticut. All the bonds under the indenture are secured equally by all of the mortgage loans.
METHODOLOGY
The principal methodology used in the long-term rating was US Housing Finance Agency Single-Family Housing Methodology published in October 2019 and available at https://ratings.moodys.com/api/rmc-documents/62560. The principal methodology used in the short-term rating was Variable Rate Instruments Supported by Conditional Liquidity Facilities published in March 2017 and available at https://ratings.moodys.com/api/rmc-documents/68283. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
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The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
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David Parsons
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Additional Contact
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