1996, with the inclusion of the Safe Drinking Water
Act, the breadth of projects funded using this
revolving fund vehicle expanded to include potable
water-related projects as well. SRFs are considered
to be the strongest municipal pools, as program
administrators, along with associated state environ-
mental and health agencies, usually have significant
regulatory powers with which to compel participant
compliance. In addition, programs enjoy large equi-
ty positions due to state and federal contributions
and the relative inability of states to raid these funds
for other purposes.
Many state revolving fund programs have imple-
mented cross collateralization features between
their clean water and drinking water programs to
enhance credit quality. If Standard & Poor’s has
deemed the method effective through an analysis of
the flow of funds and timing of payment releases,
then stressed default rates will be determined as if
all participants were part of one large program,
even if multiple indentures are involved, resulting in
legally separate pledges. Such mechanisms, howev-
er, can make cash flow analyses more difficult, as
revenue streams under different indentures may be
subject to severe stresses at different points in time.
Determining what period over the life of the com-
bined program is most susceptible to participant
defaults may therefore prove extremely difficult,and a more incremental cash flow analysis may
prove useful. Presenting cash flows on an incremen-
tal basis, however, does not require the re-estima-
tion of pool stressed default rates on an incremental
basis as well. Standard & Poor’s analysts will assist
issuers in determining what analyses are needed or
most appropriate.
Because of the stability and strong state and fed-
eral protection associated with these programs,
Standard & Poor’s may give credit for other pro-
grammatic funds available to cure defaults, even
though they may not be part of the trust estate
directly securing the bonds. For these funds to be
considered in the analysis, the program should have
written policies in place that provide for the timely
transfer of these other funds to replenish bond dedi-
cated reserve draws once drawn upon. Standard &
Poor’s will review the asset quality and liquidity of
these funds as well as the program’s treasury man-
agement practices as part of its ongoing surveillance
to ensure that sufficient funds remain available to
replenish draws.
Although Standard & Poor’s may give credit to
other funds available, it still expects that a majority
of funds needed to maintain the rating will be
pledged to bond holders and invested accordingly.
Should this not be the case, the analysis would shift
away from the focus on the pledged loan portfolioCross Sector Criteria46 Standard & Poor’s Public Finance Criteria 2007
Sector Sector Code Recovery Range (%)
GO State of obligor 80-100
General fund pledge/lease appropriation State of obligor 70-85
Moral obligation State of obligor 40-55
Water-sewer/solid waste State of obligor 80-100
Sales/income tax/gas tax State of obligor 80-100
Other special tax State of obligor 70-85
Tax increment State of obligor 70-85
Spec assessment State of obligor 70-85
Public power/gas State of obligor 70-85
Charter schools State of obligor 40-55
LOCs Industry code 40-55
IRBs Industry code 40-55
Public universitites State of obligor 80-100
Private schools and universities Industry code 40-55
Health care Industry code 40-55
Other 501C3s Industry code 40-55
Housing State of obligor Varies
Airports Industry code 70-85
Toll roads/parking/garvees/ports/transit Industry code 70-85Table 1Municipal Pool/CDO Sectors