Fitch Affirms California Infrastructure & Econ Devel Bank's ISRF (2004 MI) Bonds at 'AA+'

  Fitch Affirms California Infrastructure & Econ Devel Bank's ISRF (2004 MI)
  Bonds at 'AA+'

Business Wire

AUSTIN, Texas -- January 10, 2014

Fitch Ratings affirms the 'AA+' rating on the following bonds issued by the
California Infrastructure and Economic Development Bank (CIEDB) under its 2004
Master Indenture (MI):

--Approximately $102.4 million infrastructure state revolving fund (ISRF)
revenue bonds.

The Rating Outlook is Stable.

With the issuance of CIEDB's series 2014A ISRF revenue bonds (under the 2014
MI), the outstanding series 2004 and 2005 are to be refunded in full leaving
only the series 2008 bonds outstanding under the 2004 MI. Information within
this release pertains to the 2004 MI program structure post-refunding.

SECURITY

The bonds are secured by pledged loan repayments, reserves and account
interest earnings.

KEY RATING DRIVERS

SOLID FINANCIAL STRUCTURE: Fitch's cash flow modeling demonstrates that the
program can continue to pay bond debt service even with loan defaults in
excess of Fitch's 'AAA' liability default hurdle, as produced using Fitch's
Portfolio Stress Calculator (PSC).

CREDIT QUALITY, RECOVERY PROSPECTS LIMIT RATING: The initial intention of the
CIEDB ISRF program was to provide financing to participants with limited
market access. Hence, many of the borrowers do not carry a public rating. In
its cash flow modeling, Fitch assumes these borrowers have below investment
grade credit quality.

NARROW PLEDGES: Security pledges for more than one-third of the portfolio
consists of tax increment finance, special assessment and other revenue
pledges, which Fitch believes results in lower recoveries than those backed by
tax-backed or utility system pledges.

PROGRAM IN RUNOFF: Future ISRF loans are expected to be made via the 2014 MI.
Therefore, the 2004 MI is considered to be in 'runoff' mode. This presents
additional credit risks as the program shrinks, such as increased pool
concentration and potential reductions in coverage.

CONCENTRATED LOAN POOL: The ISRF's series 2008 borrower pool is small at about
26 borrowers, largely a result of the refunding. The largest borrower, the
city of San Bernardino (unrated by Fitch), represents a high 22.5% of the
pool. The largest 10 borrowers represent approximately a high 78% of the total
pool.

STRONG PROGRAM MANAGEMENT: Program management adheres to a formal underwriting
policy which includes, among other things, minimum coverage requirements for
most borrowers. To date, there have been no pledged loan defaults in the ISRF
program.

RATING SENSITIVITIES

REDUCTION IN MODELED STRESS CUSHION: Significant deterioration in pool credit
quality, increased pool concentration, or increased bond leveraging resulting
in the program's inability to pass Fitch's 'AA' liability default hurdle would
put downward pressure on the rating. The Stable Outlook reflects Fitch's view
that these events are not likely to occur.

CREDIT PROFILE

CIEDB created the ISRF program in 1999 to provide low-cost loans for several
different categories of eligible public infrastructure projects throughout the
state.

FINANCIAL STRUCTURE EXHIBITS STRONG DEFAULT TOLERANCE

Fitch calculates the program's asset strength ratio (PASR), which includes
total scheduled loan repayments plus any reserve balances and account earnings
divided by total scheduled bond debt service, to be very strong at
approximately 2.4x versus Fitch's 'AAA' median of 1.6x. Additionally,
projected minimum annual coverage excluding reserves is very strong at 2.0x
versus Fitch's 'AAA' median of 1.2x.

Because of this strong coverage, cash flow modeling demonstrates that the
program can continue to pay bond debt service even with hypothetical loan
defaults of 100% over any four-year period (per Fitch criteria, a 90% recovery
is also applied in its cash flow model when determining default tolerance).
This is in excess of Fitch's 'AAA' liability stress hurdle of 72% as produced
by the PSC. The liability stress hurdle is calculated based on overall pool
credit quality as measured by the rating of underlying borrowers, size, loan
term, and concentration.

Although the program is able to pass Fitch's 'AAA' stress test, the rating
assigned has been limited to 'AA+' due to Fitch's concerns regarding the pool
credit quality and lower recovery prospects for some of the loans.
Additionally, as the program is closed and therefore considered to be in
runoff mode, other credit risks are increased such as pool concentration and
the potential for additional leveraging.

LOAN POOL LARGELY UNRATED, HIGHLY CONCENTRATED

Given the largely unrated nature of the loan pool, the resulting 'AAA'
liability hurdle is high at 72% versus an 'AAA' median of 33%. Fitch's model
assumes unrated borrowers have below investment grade credit quality. Lower
recovery prospects are also possible due to the narrow security pledges of
loans backed by tax increment finance, special assessment and other revenue
pledges (which, in aggregate, represent nearly one-half of the pool).

After the refunding, the ISRF loan pool under the 2004 indenture will consist
of only 26 borrowers. At 22.5%, the largest loan is secured by water utility
fee revenue from the city of San Bernardino (parity bonds not rated by Fitch).
In aggregate, the top 10 borrowers represent a high 78% of the loan pool
versus Fitch's 'AAA' median level of 52%.

STRONG PROGRAM MANAGEMENT AND UNDERWRITING

The ISRF program is separate from other state revolving fund (SRF) programs,
such as the Clean Water and Drinking Water SRFs. Pursuant to loan agreements,
underwriting criteria generally include covenants requiring each borrower to
collect tax revenues or charge sufficient enterprise rates to meet all debt
service requirements. Rate charges may also include a minimum coverage
requirement.

To date, there have been no loan payment defaults from ISRF program borrowers.
However, two credits in the ISRF program have declared bankruptcy, including
the city of San Bernardino in August 2012 and the Los Osos Community Service
District in August 2006. To date, both participants have made loan obligation
payments in full and on time. Fitch notes that although these cities have
filed for chapter 9 bankruptcy proceedings, substantial protections are
available for special revenue obligations.

DEBT SERVICE RESERVE FUND

The 2008 bonds are additionally secured by a reserve fund subject to a
requirement equal to the least of (a) 10% of the initial bonds, (b) 1.0x
maximum annual debt service, and (c) 1.25x average annual debt service.
Aggregate reserves total $3 million or about 8% of outstanding bonds.

ADDITIONAL BONDS TEST

Additional bonds may only be issued if, upon receipt of a certificate by the
trustee from the issuer, revenues pledged under both the master indenture and
any supplemental indentures provide a minimum of 1.20x debt service coverage.
While this coverage is significantly lower than the current 2.0x minimum
currently forecast for all outstanding series of bonds, management has
established an internally targeted minimum of approximately 1.3 - 1.4x.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'State Revolving Fund and Leveraged Municipal Loan Pool Criteria' (May 17,
2013);

--'State Revolving Fund and Leveraged Municipal Loan Pool 2013 Peer Review'
(Oct 31, 2013);

--'Revenue-Supported Rating Criteria' (June 3, 2013).

Applicable Criteria and Related Research:

State Revolving Fund and Leveraged Municipal Loan Pool (2013 Peer Review)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=719991

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=814152

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Contact:

Fitch Ratings
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Major Parkhurst, +1-512-215-3724
Director
Fitch Ratings, Inc.
111 Congress Avenue
Austin, TX 78701
or
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Senior Director
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