Iowa Finance Authority Issuer Credit Rating Raised To 'AA+' From 'AA' On Financial Performance

NEW YORK (S&P Global Ratings) April 15, 2019--S&P Global Ratings raised its issuer credit rating (ICR) on the Iowa Finance Authority (IFA or the authority) to 'AA+' from 'AA'. At the same time, S&P Global Ratings also raised its long-term rating on the authority's Multifamily Housing Bond Resolution debt to 'AA+' from 'AA' and its dual rating on the debt to 'AA+/A-1' from 'AA/A-1'.The outlook is stable.
The rating reflects our opinion of the authority's following strengths:
  • Total equity over total assets of 36.66%, a seven-percentage-point increase over the past five years, that is well in line with 'AA+' rated peers and demonstrates increasing solid performance and sufficient financial resources available to support the authority's GO pledge;
  • High-quality and low-risk asset base consisting primarily of 'AA+' rated mortgage-backed securities (MBS), coupled with very low whole loan delinquencies;
  • Efficient operations, as demonstrated by a five-year average return on average assets of 1.04%, indicating the organization's financial acumen and ability to generate sufficient revenues to continue operations; and
  • A track record of strong management, including executive leadership and an active board of directors that have continued to strategically plan and implement growth through well-embedded, formalized practices and policies amid top leadership changes.
Partially offsetting these strengths, in our view, is the authority's net income, which declined in 2018 after increasing in 2017.
"The stable outlook reflects our view of the stable quality of IFA's overall financial position given its high-quality portfolio, which is mostly composed of MBS," said S&P Global Ratings credit analyst Marian Zucker.
The outlook also reflects our view of IFA's management and its strategy of increasing high-quality assets on its balance sheet. We believe IFA's continued low-risk asset base and high capital-adequacy ratios create solid credit stability. Through our peer analysis, we assess an organization's equity ratios in both absolute terms and relative to other rated housing finance agencies. IFA's equity levels are very strong when compared with other 'AA+' rated peers, despite volatile profitability related to governmental grant income.
Should IFA's key ratios outperform those of its 'AA+' rated peers, combined with stable profitability, we could revise the outlook or raise the rating. We would view continued improvement in equity along with continued strong asset quality and liquidity levels as positive factors.
Although we view it as unlikely during the outlook period, if net income becomes more volatile, financial ratios deteriorate, or the authority's asset and debt profiles become higher-risk due to a material increase in variable-rate debt or increased non-performing assets, we could revise the outlook or lower the rating.
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