Fitch Ratings has assigned a 'AA+' rating to the following Maryland Community Development Administration (MCDA) Housing Revenue bonds (HRB).

$14.700 series 2024 A (Non-AMT [sustainability bonds]).

The loans issued under the program are expected to have a credit enhancement (CE) under the FHA risk- sharing program.

Additionally, Fitch has affirmed the 'AA+' rating on approximately $487 million in outstanding HRB parity debt as of Oct. 1, 2023. The Rating Outlook is Stable.

RATING ACTIONS

Entity / Debt

Rating

Prior

Maryland Community Development Administration (MD) [Multifamily Program]

Maryland Community Development Administration (MD) /1996 Indenture - MF Mortgages/1 LT

LT

AA+

Affirmed

AA+

Page

of 1

VIEW ADDITIONAL RATING DETAILS

The 'AA+' rating for the series 2024 A bond and the affirmation at 'AA+' of the existing HRB indenture reflect strong asset quality, sufficient overcollateralization, strong portfolio oversight and solid performance, along with appropriate resolution and series legal provisions.

SECURITY

The HRB resolution pledges to the parity bonds all mortgages in the loan portfolio (other than those made or purchased from standalone bonds) consisting of multifamily and group homes, as well as additional funds pledged under the legal provisions of the resolution.

KEY RATING DRIVERS

Asset Quality (Strong): As of Sept. 30, 2023, approximately 99.7% of the multifamily portfolio securing the parity bonds is insured under the FHA risk-sharing program or fully guaranteed by Fannie Mae or Ginnie Mae, mitigating the risk of losses on the underlying loans.

Cash Flow and Overcollateralization (Strong): On a cash flow basis, the assets under the resolution (assuming a withdrawal of $7 million of excess assets and excluding those securing standalone bonds) demonstrate a minimum stressed asset parity of approximately 111.85%. By practice, MCDA continues to maintain sufficient asset parity in the resolution.

Financial Resources and Program Structure (Strong): The HRB portfolio maintains strong financial resources exhibited by the program's financial asset parity of 113.6% as of June 30, 2023. Offsetting the program's financial profiles is an elevated debt-to-equity of 7%. Overcollateralization (OC) and the program's healthy profitability mitigate concerns of overleveraging. Additionally, MCDA has demonstrated strong oversight of the HRB portfolio and has had a long, successful history of administering multifamily programs. As of Sept. 30, 2023, there were no delinquent loans in the portfolio.

Asymmetric Risk Factors (Neutral): The rating is constrained to its current level because of the issuer's ability to withdraw excess assets from the resolution and to include various types of loans other than first lien mortgages. However, MCDA has demonstrated strong oversight of the HRB portfolio and has had a long, successful history of administering multifamily programs.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A prolonged downtrend in the program's asset parity ratio, indicating there could potentially be insufficient assets available to cover debt service and/or other shortfalls in stressed cash flow scenarios;

Removal of assets without corresponding debt reduction, resulting in a decline in available liquidity and financial flexibility;

Material additions of uninsured loans coupled with an increase in the uninsured construction risk exposure, prolonged delays and/or declines in financial performance.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

The issuer's ability to withdraw excess assets from the resolution and to include various types of loans other than first lien mortgages constrains the rating to its current level.

PROFILE

The MCDA was created in 1970 by the state to meet the shortage of adequate, safe, and sanitary housing in Maryland, particularly for persons or families of limited income. MCDA is in the Division of Development Finance in the Department of Housing and Community Development (DHCD) of the State of Maryland. MCDA's HRB Program was established to issue bonds to provide funds to finance or refinance loans for various types of housing. To date, the housing revenue bonds have primarily financed multi-family projects.

The series 2024 A bonds are on parity with all bonds previously issued under the resolution except the $20.1 million series 2017 A and B bonds, which were issued as standalone series separately secured solely by the funds of the series. Fitch did not rate the series 2017 A and B bonds. MCDA is issuing series 2024 A as sustainability bonds based on the intended use of proceeds of the bonds to finance a loan that is expected to provide affordable housing incorporating energy efficiency standards and features.

The series 2024 A bond 'AA+' rating and the affirmation of the existing HRB indenture reflects strong asset quality, sufficient OC, good portfolio oversight and solid performance, along with appropriate resolution and series legal provisions.

The underlying loan portfolio securing the resolution's bonds, excluding those under the series 2017 A and B bonds, is primarily comprised of 83 multifamily mortgage loans, which, as of Sept. 30, 2023, had an outstanding balance of $441.2 million. Additional loans that secure the parity bonds include 40 group home loans that account for $4.37 million of the portfolio. There is also an additional $20.1 million in loans that secures the standalone series 2017 A and B bonds.

Nearly the entire multi-family loan portfolio is insured, with only 0.3% of the loan portfolio uninsured. Approximately 99.7% of the multi-family loan portfolio is partially or fully insured by one of the following federally-backed agencies: FHA risk-share (92%), Ginnie Mae (6.9%) and Fannie Mae (.4%).

Fitch's ratings are forward-looking in nature, and Fitch will monitor developments in the sector and incorporate qualitative and quantitative inputs based on expectations for future performance and assessment of key risks. As of Sept. 30, 2023, $106. 3 million (of which a moderate $28 million is short-term) was earmarked for projects under construction, all of which have CE under the FHA risk-sharing program.

Financial pressure could develop if there are prolonged construction delays. Though reserves combined with the federal insurance and guarantees on the multifamily loans in the HRB indenture mitigate this concern, there is still uncertainty regarding how the program's balance sheet and financial ratios would be affected should there be prolonged construction risk exposure, increased transfers from the program and/or higher debt issuance over an extended period of time. Fitch continues to monitor longer-term impacts to MCDA's asset quality and financial position.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Maryland Community Development Administration (MD) [Multifamily Program] has an ESG Relevance Score of '4' [+] for Customer Welfare - Fair Messaging, Privacy & Data Security due to the program's focus on customer welfare and fair messaging. This contributes to enhanced loan performance and reduced expected losses in the rating analysis, which has a positive impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

Additional information is available on www.fitchratings.com

(C) 2024 Electronic News Publishing, source ENP Newswire