ATLANTA -- Moody's Investors Service on Monday upgraded the Kentucky Housing Corp.'s $783 million of housing revenue bonds to Aaa from Aa1, making the authority the first state housing bond issuer to receive Moody's highest rating for an ongoing housing bond program.
The rating agency has previously awarded its triple-A to specific housing bond issues secured by third-party guarantees or support, but never to a continuing series of borrowings, according to Christopher Martin, manager of the rating agency's asset-backed group.
"There was no one event that triggered the change to triple-A, just an overall strengthening of the authority's housing revenue bond program over time," Martin said.
In particular, Martin praised the program's high level of debt service reserves. which stood at $81.7 million as of July 1, 1993, and the program's overall fund balance of 122.3 million, which is 15.6% of debt outstanding.
This marks the second gilt-edged rating won by the housing authority. In September 1991, Standard & Poor's Corp. upgraded the Kentucky Housing Corp. revenue bond series to AAA from AA, citing strong balances, mortgage insurance provisions, and program oversight. Fitch Investors Service does not rate the authority.
"It's wonderful news," said the housing authority's executive director Lynn Luallen. "It may be too late to affect pricing for this issue, but we feel it will definitely have a positive effect on our bond sales in the future."
The Moody's ratings change comes in conjunction with the Housing Corp.'s issuance of $251 million of housing revenue bonds, which were tentatively priced yesterday. Bear, Stearns & Co. is underwriting the offering.
An official at Bear, Stearns called the deal a "major success," and said it was "probably helped" by the Moody's upgrade.
The upgrade to Moody's highest bond rating follows an upgrade to Aa1 from Aa in June 1991.
The authority has another bond program, a home-ownership revenue bond series, rated Aa by Moody's and A-plus by Standard & Poor's.
Martin also credited Monday's upgrade to the favorable delinquency performance of the authority's mortgage portfolio financed with bond proceeds and its history of minimal uninsured losses, which have totaled only $55,000 since the program's inception in 1973.
"Numbers like these confirm our sense of the strong management of the program and the high degree of oversight it receives." Martin said.
A Moody's report accompanying the upgrade points out that the "deep mortgage insurance provisions for the pledged portfolio of mortgage loans, which consist solely of [Federal Housing Administration] insurance and [Veterans Administration] guarantees, provide security against significant loan losses in the event of defaults."
This mortgage insurance provision, the report continues, "would allow the portfolio to withstand a large number of defaults without experiencing significant asset evaporation."
The upgrading of the Kentucky housing bond program follows a Moody's award of an Aa 1 on Sept. 7 to the West Virginia Housing Development Fund's $409 million of outstanding housing finance bonds. The bonds had previously been rated Aa.
In a report issued at the time, Moody's pointed to the West Virginia program's high level of debt reserve funds and overall fund balance, as well as its favorable delinquency performance, strong program oversight, and mortgage insurance provisions.
The West Virginia housing authority upgrade was made in conjunction with the agency's sale earlier this month of $24.8 million of housing finance refunding bonds.
Martin said the two recent upgrades are indicative of a "general strengthening of debt programs at established housing authorities."
Some of the factors contributing to the strengthening, Martin said, are an accumulation of reserves and money saved by refunding outstanding issues to take advantage of lower interest rates.
"I think there may be some more upgrades to come, but I can't tell you when," Martin said.