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Fitch Rates Dormitory Authority of New York's $528.2MM Mental Health Bonds 'A+'

Posted on: Tuesday, 24 June 2008, 02:30 CDT

Fitch Ratings assigns an 'A+' rating to approximately $528,245,000 Dormitory Authority of the State of New York (the authority) mental health services facilities improvement revenue bonds, consisting of $161,755,000 series 2008A, $79,950,000 series 2008B, $37,570,000 series 2008C (AMT), $207,370,000 series 2008D and $41,600,000 series 2008E. The series 2007D and 2007E bonds are being issued for refunding purposes. The bonds are scheduled to be sold June 25 through negotiation. Fitch also affirms the underlying 'A+' on $3.6 billion in outstanding mental health services facilities improvement revenue bonds. The Rating Outlook is Positive.

The 'A+' rating for the mental health bonds is based on the credit quality of the State of New York, whose general obligation (GO) bonds are rated 'AA-' by Fitch. Subject to appropriation and pursuant to a financing agreement between the authority and the department of mental hygiene, the state makes annual payments for debt service from patient care income and payments from voluntary agency facilities. The rating for the mental health bonds further reflects the state's commitment over many decades to providing various types of mental health services, many of which are required by court mandates. Mental health bonds issued under the second resolution adopted in 2003, including the series 2008A-E bonds, have a claim on moneys subordinate to that of bonds issued under the prior resolution. The budget includes a single appropriation for all debt, which contributes to the absence of any rating distinction between the liens and the rating on par with several other types of New York appropriation debt.

In fiscal 2008, receipts from patient care income and payments from voluntary agency facilities totaled $2.9 billion, 94% of which was Medicaid reimbursements. Patient care receipts grew by almost 16% between fiscal 2004 to fiscal 2008 but are projected to rise at a slower annual pace of 2.7%, reaching $3.09 billion by fiscal 2013. Under a detailed flow of funds, revenues are committed first to debt service with remaining revenue flowing to the mental hygiene patient income account to support the costs of providing services. Fiscal 2007 mental health bond debt service was $294 million, and maximum annual debt service (MADS) prior to this sale is $319.9 million. State general fund support for mental hygiene operations are derived from funds not required for payment of debt service. After dropping to $738 million in fiscal 2004 the funding levels have increased to $1.3 billion in fiscal 2008. Projections of fiscal 2009 aid rise another 21%, totaling $1.6 billion.

The 'AA-' rating and Positive Rating Outlook on New York's GO credit recognizes the state's substantial wealth and resources and broad economy, somewhat tempered by uneven performance across the state. Net tax-supported debt ratios (currently 4.9% of personal income) have been relatively stable and are expected to remain above average but still in the moderate range; pensions are well funded. Although the state has taken steps to bolster its financial position in anticipation of future downturns, as reflected in the Positive Outlook, the significance of Wall Street performance to state revenues makes New York particularly vulnerable to a financial market downturn. Continuation of financial services industry losses and related fallout tied to the current credit market problems poses significant near term uncertainty.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.

Source: Business Wire

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