Research: Rating Action: Moody’s assigns Aa1/VMIG 1 to Idaho Housing & Finance Association’s Single Family Mortgage Bonds 2023 Series B-2; outlook stable

New York, March 23, 2023 — Moody’s Investors Service has assigned Aa1/VMIG 1 rating to the proposed $25,610,000 Idaho Housing and Finance Association, Single Family Mortgage Bonds, 2023 Series B-2 (Variable Rate) (Federally Taxable), the “Bonds”. The Bonds will be issued under the Idaho Housing and Finance Association’s (IHFA) General Indenture of Trust, dated as of July 1, 2019 (the “2019 Indenture”). We maintain an Aa1 rating on all outstanding bonds under the 2019 Indenture. The outlook is stable.

The Bonds are separately secured and not on parity with previously issued and outstanding bonds under IHFA’s existing trust indentures other than the 2019 Indenture.

RATINGS RATIONALE

The Aa1 long-term rating on the Bonds is largely based on anticipated strong bondholders security, consisting of mortgage backed securities (MBS) and a limited portfolio of whole loans together with management’s active role and oversight. The rating also incorporates healthy balance sheet, demonstrated by Moody’s adjusted asset-to-debt ratio (PADR) of about 1.32 x, as of June 30, 2022. Margins (net revenues as a percent of total revenues) which stood at about 2.5% are low compared to peers. However, we anticipate them to improve as loan financing under the 2019 Indenture accelerates.

The VMIG 1 short-term rating assigned to the Bonds is based on the Aa1 long-term rating on the parity bonds under the 2019 Indenture as well as the P-1 short term rating of the Federal Home Loan Bank of Des Moines (the “Bank”), and the Bank’s obligation under the standby bond purchase agreement (SBPA) to purchase the Bonds upon optional or mandatory tender in the event of a failed remarketing or certain other events. The Bank’s long-term rating and short term ratings are Aaa and P-1, respectively.

RATING OUTLOOK

The stable outlook is based on the pledged security features, the legal structure of the transaction and our expectation that IHFA will mainly purchase MBS going forward.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

For the long-term rating:

 

-A substantial increase in the share of MBS to cover nearly 100% of bonds outstanding, a significant increase in asset-to-debt ratio, or both.

For the short-term rating:

 

– N/A

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

For the long-term rating:

 

-Actions by management that increase program risk, including significant increase in the share of whole loans securing the bonds or in the share of variable rate debt and related derivative instruments.

-Significant decline in program financial position or deteriorated loan portfolio performance.

For the short-term rating:

 

-Downgrade of the short term rating of the Bank and/or multi-notch downgrade of the long-term rating of the 2019 Indenture.

LEGAL SECURITY

The Bonds are special obligation of IHFA, secured on a parity basis by MBS, including multi-issuer MBS, mortgage loan repayments, other funds and accounts pledged under the 2019 Indenture and investment earnings.

Variable Rate:

The Bonds will be in the weekly rate mode and interest shall be paid on the 1st day of each January and July. IHFA may elect to change the interest rate mode on the Bonds to a different interest rate period. Upon any such change, the Bonds are subject to mandatory tender.

Standby Bond Purchase Agreement

The short term rating reflects the SBPA provided by the Bank and expires upon the earliest of to occur of (i) the mandatory tender date resulting from the expiration of the SBPA, (ii) conversion of the Bonds to a uncovered mode, or (iii) earlier termination of the SBPA.

The SBPA provides for purchase by the Bank of the Bonds that are tendered by bondholders and cannot be remarketed. Under certain circumstances the Bank can terminate the SBPA or suspend its obligations without notice and will therefore not be obligated to provide funds. These circumstances include any of the following: (1) any principal of or interest on any bond (including Bonds purchased by the Bank) is not paid when due; (2) certain acts of bankruptcy or insolvency by or involving IHFA; (3) provisions relating to the payment of principal or interest under the SBPA, the indenture, or the Bonds cease to be valid, binding or fully enforceable on the IHFA as determined by a court; (4) the rating on the Bonds falls below Baa3.

Other events of termination become effective only after the Bank provides sufficient notice to allow for a mandatory tender of the Bonds before any termination date of the SBPA.

USE OF PROCEEDS

Proceeds from the Bonds will be used to (i) finance the purchase of, or reimburse IHFA for the purchase of, or a participation interest in, MBS, (ii) make deposits in the funds and accounts required by the 2019 Indenture, and (iii) pay costs of issuance.

PROFILE

IHFA is an instrumentality of the State of Idaho with the mission of providing affordable housing for persons and families of limited income. Its primary business activity is funding the purchase and servicing of single family homes mortgages loans. IHFA is a self-sufficient housing finance agency and has 415 employees administering a variety of programs. The 2019 Indenture will be one of four indentures that comprise IHFA outstanding single-family debt.

METHODOLOGY

The principal methodology used in the long-term rating was US Housing Finance Agency Single-Family Housing Methodology published in October 2019 and available at https://ratings.moodys.com/api/rmc-documents/62560. The principal methodology used in the short-term rating was Variable Rate Instruments Supported by Conditional Liquidity Facilities published in March 2017 and available at https://ratings.moodys.com/api/rmc-documents/68283. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Omar Ouzidane

Lead Analyst

Housing

Moody’s Investors Service, Inc.

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Eva Bogaty

Additional Contact

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