New York City Housing Development Corporation Bonds Rated 'AA' For Mitchell-Lama Program

Standard & Poor's Ratings Services assigned its 'AA' rating to New York City Housing Development Corp.'s (HDC) $86.7 million bonds series 2004D, 2004E-1, and 2004E-2.

The rating reflects:

• The strong credit quality of mortgage loan portfolio,
• Excellent oversight by HDC over this diverse portfolio of mortgages, and
• Strong coverage of credit shortfalls through excess assets within the parity resolution.

The corporation's strengths are offset by the following weakness:

• Construction loans secured by LOCs rated below 'AA-/A-1+' (this weakness, however, is offset by sufficient excess assets for all series consolidated under the resolution that provide potential shortfall coverage for lower-rated LOCs).

The series 2004D bonds are being issued to fund the corporation's acquisition of a 100% participation interest in the cash flow derived from trust certificates from second mortgage loans on 31 Section 236 Mitchell Lama permanent funding mortgage, representing more than 11,000 units throughout the city. The series 2004E bonds will finance the refunding of permanent financing for more the 6,200 units in 15 Mitchell Lama properties located in the Bronx, Brooklyn, and Manhattan.

The overall mortgage portfolio, including the loans under the series 2004D-2004E, is diverse and consists of mortgages secured and/or subsidized by federal, state, and local programs. Collateral includes:

• FHA-insured mortgage loans,
• Ginnie Mae-backed loans,
• SONYMA-insured loans,
• Section 236-subsidized mortgage loans, and
• Unenhanced mortgage loans.

All bonds under series 2004D-2004E will be on parity with all other mortgages in the portfolio. Under an expected case cash flow scenario as of March 1, 2004, opening parity is healthy at more than 140%. Excess assets under the resolution are sufficient to cover reinvestment risks. The total amount available for the debt service reserve for all the bonds under the parity resolution is more than $70 million. This total includes the general obligation pledge of 7.5% of the outstanding par amount for the series 2002D and series 2003D bond issues. Due to the excesses in the parity resolution's total debt service reserve funds on deposit, no additional debt service reserve funds are needed for the series 2004D-2004E bonds.

Construction risks under the parity resolution are covered by LOCs provided by the respective borrowers in the name of the corporation. Investment securities purchased with pledged funds must be rated by Standard & Poor's in a category at least equal to the rating category of the bonds (or 'A-1+' for securities not exceeding one year).

The bonds are subject to special mandatory redemption from recoveries of principal or from unexpended bond proceeds. The bonds are also subject to a sinking fund redemption by schedule, or an optional redemption after the no-call date, established by series, at par plus interest.

The stable outlook reflects the strong quality of the loan portfolio, positive performance of the mortgage collateral, and the issuer's pledge of general obligation funds to the debt service reserve fund.