Investor Information

There are several factors that lead to the PPRF’s AAA/Aa1 senior lien and AAA/Aa1 subordinate lien ratings. PPRF loan revenues pledged to PPRF bonds exceed bond debt service in every year, in part because NMFA makes PPRF disadvantaged loans at 0% and 2% and other equity loans that are not pledged to specific PPRF bond issues but the revenues from which can be used to pay PPRF bond debt service. In addition, the PPRF program receives 75% of all Governmental Gross Receipts Taxes (GGRT) generated in New Mexico.

GGRT is used as a credit enhancement and has never been used for debt service. GGRT comprises approximately 20% of PPRF revenue each year. After senior lien bond debt service and subordinate lien bond debt service is paid in June of each fiscal year, up to 35% of GGRT is appropriated by the New Mexico State Legislature to fund planning grants, water programs and other designated uses in statute. The remaining GGRT and all excess loan revenues flow through to NMFA to be used for such purposes as funding reserves and making new loans.

NMFA funds two types of reserves from flow-through revenues:

The Common Debt Service Reserve Fund is established in the senior lien indentures governing the PPRF funds. The required CDSR funding level is based on senior lien loan revenues with pledged revenues categorized into three risk groups for calculation purposes. CDSR funds are available to make senior lien bond debt service payments should loan revenues and GGRT not be sufficient to do so. The CDSR’s funding level is approximately 25% of PPRF senior lien bond debt service in the maximum debt service year.

The Supplemental Credit Reserve Fund is established in the subordinate lien indentures governing the PPRF funds. The required SCRF funding level is set at an amount equal to the Common Debt Service Reserve Fund, which is calculated as of July each year. SCRF funds are available to make subordinate lien bond debt service payments should subordinate lien loan revenues, excess senior lien loan revenues and GGRT not be sufficient to do so. The SCRF’s funding level is approximately 50% of PPRF subordinate lien bond debt service in the maximum debt service year. 

NMFA takes a number of structuring steps to ensure the credit quality of the underlying PPRF loan portfolio. These steps include:

For lower-rated borrowers, individual debt service reserve funds may be required for individual loans. These individual debt service reserve funds, when added to CDSR funds, are almost 50% of maximum year PPRF bond debt service payments due.

About 60% of loan revenues due to NMFA in any year are subject to intercept by the New Mexico Department of Taxation and Revenue or contingent intercept by the Department of Finance and Administration for school districts. Intercept means that funds collected by Tax and Rev – usually taxes – are paid first to NMFA to meet loan obligations before funds are sent to the borrowing entity.

General Obligation bonds issued by school districts and purchased by NMFA as part of its PPRF loan portfolio are subject to a memorandum of understanding (MOU) with the New Mexico School District Enhancement Program to intercept funds of individual school districts prior to
default and are classified as contingent intercepts.

About one third of all NMFA loans (and about 3% in dollar amount) are funded by State Fire Protection Funds and Law Enforcement Protection Funds, which are paid directly to NMFA a year in advance of when the loans are due.

In its history, no PPRF loan has ever had a payment default in part due to strong PPRF credit structuring standards.