Fitch Affirms Alaska Housing Finance Co. GOs at 'AA+'

Fitch affirms the 'AA+' rating of Alaska Housing Finance Corp.'s (AHFC) General obligation debt pledge, 'F1+' of the Commercial Paper, and 'AAA' to the specific bonds listed below.

The bond indentures rated 'AA+' reflect the amounts on deposit in funds and accounts including a loan loss fund held under the indentures, the strong credit quality of the underlying collateral and related credit enhancements, the adequacy of projected pledged revenues to pay debt service, and strong and consistent management capabilities and financial strength of AHFC as evidenced by the continued oversight and replacement of related counterparties .

Credit concerns include the geographic concentration of the loan portfolio and vulnerability of the state's real estate market to the limited, oil-dependent economy. Additionally, the ratings reflect the strength of AHFC's financial position reflected in unrestricted net assets of $781 million (as of June 30, 2008), as well as access to the liquidity of the Alaska Housing Capital Corp. enabling the corporation to comply with potential accelerated principal and elevated interest payments required under the terms of the liquidity facilities supporting AHFC's outstanding variable rate demand bonds. These bonds are all general obligations (rated 'AA+') of the corporation.

Fitch affirms the 'F1+' rating to the corporation's commercial paper (CP) notes. The notes are general obligations of the corporation whose full faith and credit are pledged for the payment of principal and interest on the notes. The rating of 'F1+' considers the corporation's financial flexibility and liquidity consisting of high-quality short-term securities held in the general account or administrative fund. The available liquidity is monitored on a monthly basis. The 'F1+' rating also considers the corporation's overall credit strength, managements' stable track record and the continued cooperation from state government officials who recognize the importance of maintaining the financial strength of the corporation.

The bond indentures rated 'AAA' (mortgage revenue bonds, general mortgage revenue bonds and governmental purpose bonds) reflect the amounts on deposit in funds and accounts held under the indenture, the credit quality of the existing and expected underlying collateral and the strong credit enhancement created by the required levels of loan loss coverage in the form of cash, investments and/or the overcollateralization of the portfolio. The overcollateralization ratios equal or exceed Fitch's benchmarks for 'AAA' ratings. These bonds are also general obligations of the corporation.

As of Sept. 30, 2008, the corporation's $3.57 billion loan portfolio consists of: approximately 23% of the loans by aggregate balance covered by FHA insurance, 24% are covered by VA guarantees, 9% carry private mortgage insurance, 5% are Farmers Home Administration insured, and 39% have LTV's equal to or less than 80%, and are therefore not required to have insurance or guarantees. Over three-quarters (77%) of the mortgages are for detached single-family homes, while 11% are condominiums and 5% are either 2-4 family homes or planned unit developments. An additional 6% are secured by multifamily properties. Over 35% of the mortgages are located in Anchorage. Sixty-day plus delinquencies are only 1.16% and foreclosures are minimal.

AHFC's consolidated financial results for the fiscal year ended June 30, 2008 indicate a continued strong financial position. Transfers to the state in 2008 were $54 million and for FY 2007 were $80 million. AHFC's leverage ratios are among the lowest of all housing finance agencies with the Fitch adjusted debt-to-equity ratio at 1.96 times (x) in fiscal 2008, compared to 5.7x the aggregate for all 51 State Housing Finance Agencies. AHFC's net income before extraordinary items equaled $35.3 million during FY 2008, decreasing from $40.5 million in 2007 and $46.7 million in FY 2006. Net interest spread was basically flat at 44.1% in FY 2008 compared to 42.3% during FY 2007. Net operating margin remained fairly stable at 12.7% in FY 2008 from 11.7% during FY 2007 but down from 14.6% in FY 2006.

As of Nov. 30, 2008, AHFC has approximately 27% variable rate bonds as a percentage of their total bonds outstanding of which approximately 72% are hedged by swaps provided by Merrill Lynch Capital Services, Goldman Sachs Mitsui Marine Derivative Products, and Bear Stearns Financial Products. The variable rate component (as a % of total bonds outstanding) has decreased slightly over the past 4 years.

Outstanding Debt

Mortgage Revenue Bonds 'AAA'

General Mortgage Revenue Bonds 'AAA'

Governmental Purpose Bonds 'AAA/F1+'

General Housing Purpose Bonds 'AA+'

Governmental Purpose Bonds 'AA+/F1+'

(University of Alaska),

Home Mortgage Revenue Bonds 'AA+'

Housing Development Bonds 'AA+'

State Building Lease Bonds 'AA+'

State Capital Project Bonds 'AA+'

General Obligation Debt Pledge 'AA+'

Commercial Paper (Taxable) 'F1+'

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.