Moody's Assigns Aa1 Rating to Tulsa County Home Finance Authority Single Family Mortgage Revenue Bonds

Strategic Insights -

The Tulsa County Home Finance Authority's proposed Single Family Mortgage Revenue Bonds, Series 2025A, have been assigned a Aa1 rating by Moody's Investors Service. This rating reflects the high quality of the collateral, comprising 100% GNMA, FNMA, or FHLMC mortgage-backed securities, as well as the overcollateralization of the program at origination, which is 1.00x based on cash flow projections. The program benefits from a strong legal structure and cash flow projections that demonstrate the ability to meet all debt service and fees under multiple stress scenarios for the life of the bonds.

Key Takeaways:

  • The Aa1 rating is based on the high quality of the collateral, which is comprised of 100% GNMA, FNMA, or FHLMC mortgage-backed securities.
  • The program is overcollateralized at origination, with a ratio of 1.00x based on cash flow projections.
  • The program benefits from a strong legal structure and cash flow projections that demonstrate the ability to meet all debt service and fees under multiple stress scenarios for the life of the bonds.
  • The initial source of funds to pay negative arbitrage until MBS acquisition (expected by August 2026) is a portion of bond proceeds.
  • The program's asset-to-debt ratio is expected to be at or above 100% due to interest rate spreads between the assets and bonds under the indenture.
  • Interest payments are passed through to bondholders, and MBS principal repayments and prepayments will be used to redeem the bonds.
  • The program's legal provisions help to maintain ongoing credit strength via the establishment of a sound legal structure and provisions for high-quality investments.
  • The loan portfolio will provide the highest quality security for the bonds, with mortgage-backed securities guaranteed to full and timely payment of principal and interest by GNMA, FNMA, or FHLMC.

Statistics:

  • The proposed bonds have a face value of $25 million.
  • The program is expected to generate sufficient revenue from its mortgage-backed securities to meet all scheduled debt service payments.
  • The program's asset-to-debt ratio is expected to be at or above 100% due to interest rate spreads between the assets and bonds under the indenture.
  • Interest due on the bonds is less than the interest due on the loans less all program, servicing, trustee, and guarantee fees.
  • The bonds are expected to be redeemed using MBS principal repayments and prepayments.

Sources:

  • Moody's Investors Service (news release, unattributed date)
  • Moody's Investors Service (Rating Methodology, October 2024, https://ratings.moodys.com/rmc-documents/430702)
  • Moody's Investors Service (Rating Methodologies page, https://ratings.moodys.com)