Sector Review:

U.S. Clean And Drinking Water State Revolving Fund Programs Maintain Exceptionally Strong Credit Quality
Primary Credit Analysts: James M Breeding, Dallas (1) 214-871-1407; james.breeding@standardandpoors.com Scott D Garrigan, Chicago (1) 312-233-7014; scott.garrigan@standardandpoors.com Secondary Contact: Geoffrey E Buswick, Boston (1) 617-530-8311; geoffrey.buswick@standardandpoors.com

Table Of Contents
Recent Funding Trends Fiscal 2014 EPA Funding Levels Are Uncertain State-Match Options 'AAA' Ratings Dominate

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U.S. Clean And Drinking Water State Revolving Fund Programs Maintain Exceptionally Strong Credit Quality
Bonds issued under U.S. clean water and drinking water state revolving fund programs (SRFs) continue to enjoy very strong and stable credit quality, in Standard & Poor's Ratings Services' view. Amendments to the Clean Water Act established the clean water program in 1987 and the drinking water program in 1996, and the U.S. Environmental Protection Agency oversees state-level management of both. SRF bonds' fundamental credit strengths continue to include robust financial policies and practices, exceptionally low borrower payment delinquencies or defaults, and maintenance of either significant reserves or high annual coverage of bond debt service. As in the past, we expect our ratings on this sector to remain very high and stable--all but three of the SRFs we rate have 'AAA' ratings, and the remaining three are 'AA' or higher. Overview Credit quality remains extremely high for U.S. clean water and drinking water state revolving fund programs. All but three of the 27 programs we rate have 'AAA' ratings. SRF programs continue to migrate to coverage-based structures, with a lessening reliance on reserve funds. Funding levels for fiscal 2014 remain in question, though funding volatility should not hurt credit quality.

Standard & Poor's maintains ratings on clean water and drinking water revolving fund bonds in 27 states. These rated programs have about $30 billion of debt outstanding, with New York State Environmental Facilities Corp. accounting for about one-fifth of the total and Massachusetts and Ohio close behind, together representing another one-fifth. The SRF programs either make loans to local entities or purchase bonds local entities issue to support projects that state agencies (typically a Department of Health or a Department of Environmental Protection) have previously approved. The programs we rate provide assistance to nearly 6,000 communities of vastly different sizes, with New York City Municipal Water Finance Authority the largest participant. Given the ongoing national need for clean and drinking water projects, we expect activity within this sector to remain robust. To meet state-match requirements, some SRF programs routinely issue state-match bonds secured by interest earnings on loans made (or local bonds purchased) with bond proceeds. Other SRF programs issue bonds to make additional funds available to lend. Given the number of programs that generate excess cash flow each year, lower additional bond issuance may occur as more recycled funds become available to loan. However, many programs have issued refunding bonds and may continue to do so as they shift to updated program structures.

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Recent Funding Trends

Perhaps the most significant recent change is the movement away from the traditional reserve fund model to a cash-flow or hybrid model. For years, many programs used reserves, often held in guaranteed investment contracts (GICs), to provide protection against borrower portfolio defaults or delinquencies. However, with exceptionally low interest rates and fewer highly rated GIC counterparties, states have moved to structures that emphasize annual coverage versus reserves on hand. Many programs have introduced new indentures under which they issue bonds to refund old indenture bonds. The new indentures, often in the form of a master trust indenture or master financing indenture, allow for either reserves or annual coverage margins to serve as the collateral to protect against defaults or delinquencies. While Standard & Poor's has no preference regarding the type of structure, the cash-flow/hybrid model provides flexibility in the type of overcollateralization used.

Fiscal 2014 EPA Funding Levels Are Uncertain

The level of appropriation for the current 2014 fiscal year is still uncertain. The latest Senate Committee on Appropriations budget allots $1.45 billion for capitalization grants for the clean water SRF and $907 million for capitalization grants for the drinking water SRF. However, the House of Representatives' latest bill would result in unprecedented and drastic cuts to both programs of a whopping 83% and 61%, respectively. There is also potential for a continuing resolution that would maintain appropriations at post-sequester levels. Although future grants are not required for any specific state-level program to maintain its credit rating, the availability of federal grants, coupled with the state's matching of these funds, provides critical funding for municipal water and wastewater systems that may not have access to the capital markets.

State-Match Options
To receive federal funds for clean water and drinking water projects, states (or a state agency, department, or separate authority) must provide matching funds. Historically, there have been four primary sources for state-match funds. First, many states provide matching funds by issuing state-match bonds that they secure by interest earnings on loans made (or local bonds purchased) with bond proceeds. State-match bonds typically have shorter amortization schedules and high annual debt service coverage. Another option is to use surplus revenues on hand to meet the state-match requirement. The remaining two options are to issue state general obligation (GO) bonds or to transfer funds from other state departments or the state's general fund to the entity managing the program. Often states use a combination of these options to meet these requirements.

'AAA' Ratings Dominate

Standard & Poor's currently maintain ratings on SRF programs in 27 states. Some states, such as Colorado, have issued both clean water and drinking water SRF bonds and have issued both senior- and subordinate-lien bonds under each program. Many states--such as Kansas, through the Kansas Development Finance Authority--have issued specific

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series of bonds for each program, but the programs have cross-collateralization, providing support for one another. Other states, such as Minnesota, have begun to issue subordinate bonds under a new master indenture that program cash flows entirely support, while closing off the senior lien that reserve funds primarily overcollateralize. Certain agencies, departments, or state authorities that administer these programs also manage direct loan programs, some of which predate the establishment of the state's clean water or drinking water revolving fund programs. Given the strengths of clean water and drinking water SRFs, our ratings on all but three of them are 'AAA'. The three outliers have unique credit considerations. Both the Alabama Drinking Water Finance Authority ('AA+') and the Alabama Water Pollution Control Authority ('AA') issue bonds that specific borrower repayments and dedicated reserves support, under separate closed indentures. Moreover, the issuers do not cross-collateralize them with other authority-issued bonds. Wisconsin's clean water program ('AA+') is strong, though pool concentration and heavy reliance on GICs and forward purchase agreements to achieve overcollateralization constrain the rating. Given the structure of SRF programs, every program scored high in market position and, ultimately, enterprise risk. State statutes create these programs and state departments manage them, and equity contributions are ongoing. Additionally, these programs score well on financial risk. Almost every program has detailed loan application and monitoring policies, with a professional management team that closely monitors borrowers' performance, investments, and future loan demand. Rationales
State Program Alabama Alabama Water Pollution Control Authority Loan payments to the authority, combined with money on deposit in the special funds under the trust indenture, provide security for the bonds. A closed, small pool of only 18 borrowers and 20 loans, which include unrated borrowers and loans that bond issuances did not reimburse, provide revenues for bond debt service. Excluding the final maturity year, and including loan payments and interest earnings from the loan subsidy and debt service reserve, annual debt service coverage ranges from 1.10x to 1.14x in most years. Alabama Drinking Water Finance Authority Securing the bond repayment are loan revenues from 32 distinct entities within the state, with total loans outstanding supporting the bond repayment totaling $71.6 million. These bonds have a final maturity of Aug. 14, 2024, while the pledged loan repayments extend to 2031. This provides sufficient protection against a late default scenario. The cash flows are structured to generate coverage of about 1.37x in each year with loan payments alone, which provides substantial collateralization to protect against loan defaults or delinquencies. Arizona Arizona Water Infrastructure Finance Authority (WIFA) Coverage of debt service from all sources is sufficient to meet our default tolerance for 'AAA' rated municipal pools. Including loan revenues and interest earnings, coverage of annual debt service is no less than 1.3x for all years of debt service. All of WIFA's bonds have access to a cross-collateralization mechanism. Provisions in the master indenture allow for clean and drinking water funds to advance revenues to one another if an insufficiency arises. Arkansas Arkansas Development Finance Authority (ADFA) CWSRF Coverage AAA CWSRF/DWSRF Hybrid AAA DWSRF Hybrid AA CWSRF Hybrid AA+ Purpose Structure Rating

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Rationales (cont.)
The combined borrower pool consists of 137 loans to 92 separate entities. Projected debt service coverage ranges between 2.2x and 4.4x through 2028. ADFA does plan to issue additional bonds that could dilute coverage, though management indicated it does not intend to issue additional bonds that would cause annual coverage to drop below 2.0x. Currently, the top five borrowers represent about 40% of the total loan amount outstanding. While the bonds supported by these loan payments total only about $100 million, loans outstanding to borrowers total nearly $400 million. California California Infrastructure & Economic Development Bank The clean water SRF makes loans to local governments in California to finance water pollution control projects. The program receives annual financial support from the federal government through capitalization grants under the Clean Water Act, along with state and local match revenues. For the series 2012 bonds, the board pledged 24 loans totaling $395 million in principal amount, $143 million of which is due by Oct. 1, 2018, the final maturity of the bonds. The loan repayment schedules provide debt service coverage of about 1.7x or greater in each year. Colorado Colorado Water Resources & Power Development Authority Providing security for the bonds are loan repayments from specific borrowers funded by their respective bond series and excess payments from the revolving funds' leveraged and direct loan programs, as well as money from certain funds, accounts, and subaccounts. All senior secured bonds in the drinking water and water pollution control revolving fund programs share in the same cross-collateralization provisions of excess loan repayments from the drinking water revolving fund and water pollution control revolving fund. Including all loan repayments, planned deallocation of funds from the matching fund balance, and interest earnings, these cover annual debt service (seniorand subordinate-lien) by no less than 1.4x, and in most years, coverage is above this. These coverage levels do not take into account the availability of any cross-collateralized funds, as the coverage levels are reflective of each program separately. Matching account reserve balances in the clean water program total $145 million and are $53 million in the drinking water program. The majority of the total reserves are held either in direct U.S. government obligations (45%) or in fully collateralized repurchase agreements (48%). Connecticut Connecticut With the issuance earlier in 2013, there is now about $940 million of bonds outstanding, supported by $1.33 million of loans either outstanding or committed, along with an additional $90.4 million of available pledged reserves. Those available pledged reserves are held in the support fund and consist of about $55 million invested in state and local government securities, $23 million with Bank of America Corp., and $12 million with Trinity Funding Company, LLC. The debt service funds currently total about $142 million, split among investments with American International Group (AIG), Inc., Bank of America Corp., Societe General, Natixis Funding Corp., State Street Bank, and the state's short-term investment fund. Another $109 million is held in accounts not pledged to the bonds, with an additional $298 million of cash available as well, though this is not technically pledged. Although not pledged, these funds provide support because they can only be used for debt service or to make future loans, whose repayment would flow to a pledged account. Florida Florida Water Pollution Control Financing Corp. Cash flows generated for repayment of the debt service on the bonds will be from loan repayments from existing loans, pledged loan payments from these new loans and future loans, and reserve earnings. Loan repayments are expected to provide at least 1.8x coverage throughout the life of the bonds. This coverage level is well above that needed to obtain the lowest (best) loss coverage score. In addition to the high coverage levels, providing extra security is a reserve fund funded at the lesser of 10% of par, 125% of average annual debt service, or maximum annual debt service. The combined reserve balance is currently $50.1 million. Illinois Illinois Finance Authority CWSRF/DWSRF Hybrid AAA CWSRF Hybrid AAA CWSRF Hybrid AAA CWSRF/DWSRF Hybrid AAA CWSRF Coverage AAA

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Sector Review: U.S. Clean And Drinking Water State Revolving Fund Programs Maintain Exceptionally Strong Credit Quality

Rationales (cont.)
The SRF currently has two series of bonds outstanding that were for both clean and drinking water purposes: series 2002 and series 2004. Security for debt service payment on the revolving master trust bonds is the authority's pledge of borrower repayments from pledged loans, investment income earned from the various funds and accounts, and amounts held in the reserve funds of both programs, which total $83 million. Considering both series 2002 and 2004 bonds together, annual coverage of debt service by pledged revenues is structured to be at least 1.5x; loan repayments alone generate at least 1.3x coverage. Indiana Indiana Finance Authority Payment of debt service is secured through the trust estate, which primarily consists of loan principal and interest payments, as well as interest earnings and balances on various reserve accounts. The program's overall cash flows are structured to generate annual loan revenues and interest earnings that cover debt service from both state-match and guarantee bonds by just over 1x in most years (except in some years when a small amount of reserves are de-allocated specifically to pay debt service). Cross-collateralization is achieved through the program's deficiency fund. This fund holds reserve draws and excess program revenues that can be used to pay debt service on any parity debt outstanding. Iowa Iowa Finance Authority Debt service is secured by the trust estate, which consists primarily of pledged loan revenues, reserve funds, and interest earnings. Annual coverage of debt service is at least 3.7x on the state-match portion of all SRF bonds. Total annual debt service coverage on all SRF bonds exceeds 1.1x in all years. Debt service for both clean and drinking water is structured to have the highest annual debt service in the first years and then slowly decline. In addition to annual coverage of debt service, the program's reserves and pledged equity also add credit support. Kansas Kansas Development Finance Authority (MFI) The cash flow projections for the new MFI clean water bonds show significant excess funds from the existing water pollution control program flowing to the new indenture. With this transfer of excess funds, the MFI loan portfolio could withstand a very high level of loan defaults. Based on the cash flows provided, which include loan repayments and a steady release of reserve funds, the existing loan portfolios could withstand defaults at a level sufficient to achieve the highest loss coverage score. Once funds are released to the new MFI bonds, the new portfolio could withstand a high level of payment defaults by borrowers pledged solely to the new indenture bonds. Kentucky Kentucky Infrastructure Authority Primarily securing debt service are loan revenues from municipalities, with the security for most loans being water or wastewater utility revenues. Currently there are 148 borrowers with $895 million of principal outstanding. The program's overall cash flows are structured such that annual loan revenues exceed debt service payments by at least 1.7x in the wastewater program and 2.7x in the drinking water program. Excess revenues can be used for any SRF purpose, including for debt service on parity debt. Maine Maine Municipal Bond Bank Loan revenues made both from SRF bond proceeds and out of bank equity, the capital reserve fund (debt service reserve), and various interest earnings on pledged funds primarily secure debt service. Management has structured annual loan payments to overcollateralize debt service by at least 4.1x in the first year of debt service and then steadily increase. Program loans have two components: an SRF loan, composed of bond proceeds; and an equity loan, composed of federal capitalization grants, matching state funds, recycled loan proceeds, and investment earnings. Because of this overcollateralization, and the existence of an additional $8.3 million in the pledged capital reserve fund, we believe these revenues are sufficient to meet our default tolerance test for an extremely strong loss coverage score. Maryland Maryland Water Quality Financing Administration (MWQFA) CWSRF Hybrid AAA CWSRF/DWSRF Coverage AAA CWSRF/DWSRF Coverage AAA CWSRF/DWSRF Hybrid AAA CWSRF/DWSRF Hybrid AAA CWSRF/DWSRF Hybrid AAA

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Rationales (cont.)
Through 2005, bonds were issued under an indenture that created a reserve fund that supplemented excess cash flow coverage. Only the series 2005A bonds remain outstanding under this indenture. At the end of fiscal 2012, there were $18.8 million of bonds outstanding, supported by pledged loans totaling $24.7 million. The borrower portfolio consisted of 32 loans remaining to 20 separate borrowers. In addition, reserves in the amount of $9.1 million are also available to cure any loan defaults of deficiencies. In 2008, MWQFA issued its series 2008A bonds under a separate indenture. There is not a separate reserve fund for the series 2008A bonds; however, projected cash flows show annual coverage of debt service ranging from a low of 5.3x in the final year of the amortization schedule to a high of 26.0x in 2015. Massachusetts Massachusetts Water Pollution Abatement Trust (MWPAT) Securing pool SRF bonds are revenues from borrower repayments, commonwealth assistance payments, and earnings and principal on various reserve funds. The commonwealth's (AA+/Stable) GO pledge secures assistance payments. Primarily securing MWPAT's SRF bonds are loan repayments from those specific entities, series reserve funds, reserve earnings, and the deficiency fund. Series reserve funds are sized between 33% and 50% of the original principal of the loans. Aggregate program cash flows indicate that annual revenues from loan repayments, investment earnings, and commonwealth assistance payments exceed debt service by at least 1.2x in early years of the program and then generally increase over time to slightly less than 1.4x. Pledged to $3.5 billion of bonds outstanding for all programs are $3.7 billion of loan principal and total commonwealth payments, as well as $1.2 billion of reserves. Reserve balances are invested primarily in U.S. treasury obligations and guaranteed investment contracts with various providers. The trust also holds a large portfolio of equity funds currently totaling $234 million that management could use to cure defaults if needed. Michigan Michigan Finance Authority (MFA) Management has shown annual debt service coverage from pledged loan repayments, interest earnings on investments, and planned annual draws of reserve fund investments to be at least 1.4x on the clean water bonds and 1.8x on the drinking water bonds. Bond reserves (aggregate clean and drinking water programs) are invested in vehicles that involve several different counterparties. MFA maintains a large $743 million of reserves to generate earnings for the desired loan interest rate subsidy, and to remain in compliance with minimum reserve requirements for its various classes of bonds (which vary based on the amount of principal outstanding). All of the authority's SRF debt issued before 2009 was of the PPB-I type, with reserves providing overcollateralization and interest earnings used as a loan interest rate subsidy. The PPB-III type bonds issued since 2009 allow for cash flows to be structured with or without a reserve, or with overcollateralization provided with a combination of additional loan revenues and reserves. Minnesota Minnesota Public Facilities Authority Upon issue of the authority's series 2010 bonds, the lien on senior bonds was closed, and the authority is starting to issue subordinate-lien bonds pursuant to a new master indenture. Overcollateralization on the subordinate bonds is achieved through coverage of loan and other pledged revenues. Security for payment of debt service on the bonds is provided by loan repayments; capitalization grants; and monies, investments, and other income, excluding state-match income, held in funds or accounts. Legal provisions relating to each fund mandate that principal and interest payments of the fund providing the loan must be met before it can provide assistance to the other fund. Annual revenue coverage of senior-lien debt, and only accounting for incoming loan revenues, is at least 1.7x in the clean water pool and at least 2.7x in the drinking water pool. Total coverage of all senior- and subordinate-lien debt exceeds 1.0x in both the clean and drinking water pools. Deficits can then be cured with the large amount of equity held in the funds. Additional subordinate-lien bonds can be issued only if pro forma annual debt service coverage is at least 1.1x on senior-lien bonds and 1.0x on subordinate-lien bonds. Nebraska Nebraska Investment Finance Authority (NIFA) Given the current portfolio of pledged loans outstanding, pledged revenues are sufficient to withstand a level of defaults consistent with an extremely strong loss coverage score; this score also incorporates the results of the largest obligor test, which the program passes. Coverage of debt service from annual loan interest payments exceeds 1.3x. In addition, interest earnings from various funds and a $1.4 million reserve fund are also pledged to bondholders. Currently, NIFA also holds $9 million of excess funds that can be used to make additional loans or pay debt service if needed. DWSRF Hybrid AAA CWSRF/DWSRF Hybrid AAA CWSRF/DWSRF Hybrid AAA CWSRF/DWSRF Hybrid AAA

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Rationales (cont.)
New Jersey New Jersey Environmental Infrastructure Trust Various trust estates and a master program trust account established under a master program trust agreement secure debt service. Each trust estate relates to a specific bond issue and primarily consists of loan repayments pursuant to various loan agreements, interceptable state aid (due to certain borrowers, if needed to make trust bonds payments), and debt service reserves used to cure defaults on a specific bond series issued before 2007. Management has shown annual debt service coverage from trust and fund loans to range from 2.0x-2.7x over the life of the bonds. In addition, debt service reserves total $94.5 million, all invested in U.S. Treasury and agency securities. These are also available to cure defaults related to the previous leveraged bonds issued before 2007, but are not available on a cross-collateralized basis between different bond series. New York New York State Environmental Facilities Corp.(2010 MFI) Pledged loan repayments include repayments of leveraged loans, made from bond proceeds, and direct loans funded through federal capitalization grants and state match funds, or program equity. The corporation has elected to use federal capitalization and state match funds to provide debt service subsidies to eligible participants in the state as identified in its intended use plan (IUP). Currently, contracted interest rate subsidy levels are 50% and 33% for clean water loans and drinking water loans, respectively. To achieve these subsidy levels for the 2010 MFI bonds, the corporation makes loans to participants that are funded from a blend of bond proceeds and federal and state funds. Management can also make market rate loans--that is, loans that do not receive any subsidy because the participants fall below the traditional IUP subsidy level. To the extent that these loan repayments are pledged to the indenture, they dilute coverage. Coverage will vary depending on the mix of clean water, drinking water, market-rate, and additional direct loans pledged to the bonds. Pledged loan repayments currently total about $1.12 billion over the life of the bonds, supporting about $624 million of bond principal. Ohio Ohio Water Development Authority Program cash flows are supported with investments in a debt service reserve ($18 million for drinking water and $116 million for water pollution) and $615 million of revenues in the combined programs' other project funds; these revenues can be used to cure any defaults that would occur within each program. Surplus interest payments within the water pollution pool totaling $231 million may also be loaned across funds, creating a cross-collateralization. In general, gross coverage of debt service from loan revenues exceeds 1.3x (and in many years is much higher). Oklahoma Oklahoma Water Resources Board The board has previously issued series 2003 drinking water SRF revenue bonds and series 2004 clean water and drinking water SRF revenue bonds. Those series used sizable reserve funds to serve as protection against defaults by local borrowers. With the series 2010 bond issue, the board began using surplus revenues from borrower loan repayments to cover any potential defaults. All of these series are cross-collateralized and have access to program reserves and surplus program revenues. There are about 325 loans outstanding through the two SRF loan programs to about 155 distinct borrowers, with about $1.1 billion either due on those loans, or remaining to be lent. There is some concentration in the programs, with the five largest borrowers accounting for about 32% of the combined loans that will be outstanding. With the issuance of the 2013 bonds, there is approximately $620 million of revolving fund program bond principal outstanding. The OWRB has issued eight previous series of bonds related to either the clean water or drinking water programs and has never experienced a default on its local loans. Rhode Island Rhode Island Clean Water Finance Agency CWSRF/DWSRF Hybrid AAA CWSRF/DWSRF Hybrid AAA CWSRF/DWSRF Hybrid AAA CWSRF/DWSRF Coverage AAA CWSRF/DWSRF Hybrid AAA

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Rationales (cont.)
Securing payment of debt service are certain loans made to local governments and funds established under each program's indenture. Local interest subsidy trust (LIST) fund reserves provide additional security. The LIST fund is capitalized with federal and state capitalization grants, as well as miscellaneous grants and other state assistance. The clean water program LIST fund currently has $112 million of investments and the drinking water program LIST has $29 million of investments. Pledged loan revenues, LIST earnings, and planned deallocations of LIST reserves cover total clean water program debt service by at least 1.4x. For the drinking water program, coverage of state aid bonds (including loan interest payments and LIST earnings only) exceeds 4x each year; all pledged revenues cover total debt service by at least 1.4x. Also supporting the cash flows, if needed, are $44.9 million of drinking water and $48 million of clean water money market funds available in various pledged funds. South Dakota South Dakota Conservancy District The district achieves overcollateralization through annual revenues that are structured to be well in excess of annual debt service costs, as well as surplus revenues generated from prior years' cash flows. For both clean and drinking water, minimum annual debt service coverage just from loan revenues exceeds 1.5x in all years, except 2013, and is more than 2.0x from 2016 through 2021. The district currently has more than $100 million of available funds invested in guaranteed investment contracts (GICs) and about $46 million of cash-equivalent funds. Investments in GICs are with providers with ratings that currently range from high investment-grade to speculative-grade. Texas Texas Water Development Board As of May 31, 2013, TWDB had approximately $2.8 billion of political subdivision bonds outstanding that it has pledged to secure about $1.05 billion of SRF debt outstanding. Board officials have funded the purchase of political subdivision bonds with a combination of state-match and revenue bonds, federal capitalization grants, and surplus cash flows from the program. The program's capitalization sources have allowed the board to maintain very strong debt service coverage. Supporting the revolving fund bond repayments are revenues due on nearly 300 loans outstanding. There is a diverse group of local issuers, though the Houston Combined Utility System currently has bonds outstanding to TWDB for about $625 million, or about 22% of all bonds owned by the board. Management is projecting debt service coverage to be no lower than 1.6x through the life of the bonds without the use of any available cash balances. When annual revenues are combined with carryover amounts from prior years, coverage is not expected to decline below 3.0x. For the 12-month period ending May 1, 2014, the board anticipates receiving revenues of nearly $160 million, with debt service requirements for state-match and subordinate-lien bonds totaling only $76 million. Virginia Virginia Resources Authority The cash flows are constructed so that loan payments received annually cover the required bond principal and interest payments by a factor of about 1.2x to 1.7x. As proposed, the cash flows can withstand a default stress rate of about 40% starting in year 1, with a recovery rate of 80% starting in year 5, without the use of any reserves on hand. Given the structure of the cash flows, recovery is not needed for debt service payments to remain uninterrupted. In addition to the coverage generated each year, there are reserves in place currently totaling $195.0 million that provide a significant cushion for defaults or delinquencies. The debt service schedule currently extends to 2034, with excess revenues realized each year. The reserve balance is scheduled to gradually decline absent additional bonding. Wisconsin Wisconsin Aggregate program cash flows indicate that annual revenues from loan repayments and state subsidy payments generally represent about 1x annual debt service. State subsidy payments are achieved through the use of state GO bonds as part of the program cash flow, which provides a debt service subsidy for the bonds and lowers the interest rate on the loans. The amount of state GO bonds on deposit in the subsidy fund totals $167 million, which, together with interest payments, provides for about 20% of aggregate debt service on parity clean water bonds. The state GO bonds are fully transferable and are held by the trustee. The state achieves overcollateralization primarily through amounts held in the loan credit reserve fund, which currently holds $105 million. This level of overcollateralization corresponds to a strong loss coverage score, which also incorporates a least favorable score on the largest obligor test; this latter test is least favorable because of the larger obligor concentration of the state subsidy GO bonds and Milwaukee Metropolitan Sewer District. CWSRF Hybrid AA+ CWSRF Hybrid AAA CWSRF Hybrid AAA CWSRF/DWSRF Hybrid AAA

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Rationales (cont.)
CWSRF--Clean water state revolving fund. DWSRF--Drinking water state revolving fund.

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