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South Dakota Housing Development Authority -- Moody's assigns Aaa to South Dakota HDA's Homeownership Mortgage Bonds, 2021 Series A (Non-AMT); outlook stable

·12 min read

Rating Action: Moody's assigns Aaa to South Dakota HDA's Homeownership Mortgage Bonds, 2021 Series A (Non-AMT); outlook stable

Global Credit Research - 23 Dec 2020

New York, December 23, 2020 -- Moody's Investors Service has assigned Aaa to the proposed South Dakota Housing Development Authority's (Authority) $66 million Homeownership Mortgage Bonds, 2021 Series A (Non-AMT). Moody's also maintains the Aaa ratings on all of the Authority's Homeownership Mortgage Bonds (Program; approximately $1.2 billion outstanding). The outlook is stable.

RATINGS RATIONALE

The Aaa ratings are based on the Program's strong financial position, which is evidenced by an asset-to-debt ratio (PADR) of 1.31x as of fiscal year 2019 (5-year average operating margin of 20%), a high-quality loan portfolio (84% mortgage-backed securities (MBS); the remaining whole loans, mostly government-insured) and solid management.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The coronavirus crisis is not a key driver for this rating action. We do not see any material immediate credit risks for the Authority or the Program. However, the situation surrounding COVID-19 is rapidly evolving and the long-term impact will depend on both the severity and duration of the crisis. If our view of the credit quality of the Authority or the Program changes, we will update the rating and/or outlook at that time.

RATING OUTLOOK

The stable outlook is based on the Program's strong financial position.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING

- n/a

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING

- Significant decrease in PADR and profitability or large increase in variable rate debt combined with severe financial deterioration

LEGAL SECURITY

The bonds are issued under the Homeownership Mortgage Bonds program and are on parity with outstanding bonds. The bonds are secured by pledged assets and revenue from a portfolio of single-family whole loans, MBS, as well as cash and investments maintained in program funds as established by the Authority's Homeownership Mortgage Bonds program. The bonds are further secured by a general obligation pledge of the Authority. The bonds also carry the moral obligation pledge of the State of South Dakota (Aaa stable), covering shortfalls in the Capital Reserve Fund (funded at 3% of outstanding bonds issued on or after March 1, 2008).

USE OF PROCEEDS

The 2021 Series A bond proceeds, together with proceeds from the 2021 Series B Bonds (to be rated in the near future), will be used to acquire new MBS.

PROFILE

The South Dakota Housing Development Authority was established in 1973. The Homeownership Mortgage Bond Program was established in 1977. The Bond Program is the Authority's active single-family financing program. The proceeds of bonds issued under this resolution are used to finance housing to low-and-moderate income persons in the State of South Dakota. The indenture also accounts for the Mortgage Backed Security Program and the investments related to this program.

METHODOLOGY

The principal methodology used in this rating was US Housing Finance Agency Single-Family Housing Methodology published in October 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1154478. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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 ratings tab on the issuer/entity page for the respective issuer on www.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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

Please see www.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 ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ping Hsieh Lead Analyst Housing Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Florence Zeman Additional Contact Housing JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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