CalHFA upgraded to AA by S&P

The California Housing Finance Agency had its rating upgraded to AA from AA-minus by S&P Global Ratings.

S&P assigned a stable outlook.

The rating is the highest general obligation rating in CalHFA’s 47-year history, according to the agency.

“The rating action reflects our view of CalHFA’s significant improvement in financial ratios over the past two fiscal years, to levels above those of peers, as well as its significant reduction in leverage and risk,” said S&P Global Ratings credit analyst Aulii Limtiaco.

The stable outlook reflects “our expectation that CalHFA’s financial ratios, which are above our AA category benchmarks, will decline to some degree, compared with the current very high levels given the agency’s leverage and on-balance-sheet lending plans,” Limtiaco said.

“We are very pleased that S&P has upgraded CalHFA to the Agency’s highest credit rating ever,” said CalHFA Director of Financing Erwin Tam. “This improvement underscores the strength that stands behind all of our financial commitments as CalHFA continues to invest in diverse communities throughout California to address the state’s housing crisis.”

CalHFA, created in 1975, is an agency of the state, and is governed by a board of directors with 13 voting members. It shares certain functions with the state’s housing department but has independent authority as to its bonds and housing loan programs.

Its primary activities are financing single-family mortgage loans to low- and moderate-income borrowers and loans to affordable apartment developers. It issues bonds to finance mortgage loans for affordable rental housing developments in the state, under a parity indenture with the bonds secured equally by the mortgage loans.

CalHFA said it is planning to access the capital markets in early 2023 to finance its homeownership and multifamily programs for low- and moderate-income Californians. The planned offerings represent the first issuances of bonds under the new parity indentures.

CalHFA received kudos from S&P for successfully managing programs even during difficult times, crediting the strength and experience of its management team and board, according to CalHFA’s release.

The agency had its issuer rating from Moody’s Investor Services upgraded to Aa3 from A1 last year. Moody’s also revised the outlook to stable from positive on $89 million in CalHFA multifamily housing revenue bonds outstanding as of Dec. 31, 2020.

Moody’s Aa3 rating “is based on very strong collateralization levels (ADR of 3.28 times) and margins (53%), solid loan performance, as well as management’s strong governance.”

Moody’s stable outlook reflects “strong and improved financial performance, favorable trends in loan performance resulting from low delinquency and program run-off, and strong management which will help mitigate any potential weakening of the loan portfolio, resulting from any potential challenges arising from the COVID-19 pandemic,” according to the ratings agency.