(New York, NY) Fitch Rating has downgraded the bond rating for the New Hampshire Municipal Bond Bank from AA to AA-, but New Hampshire’s Treasurer says it’s not reason to worry about the credit worthiness of New Hampshire cities and towns.

The New Hampshire Municipal Bond Bank was formed in 1978 to serve as a clearing house for local bonding, enabling municipalities to save money and get more competitive interest rates by pooling their capital projects. Instead of going to the bond market by themselves to get funding for new schools or roads, towns borrow money through the NHMBB, which issues bonds to finance local projects across the state. Since 1978, the NHMBB has borrowed $2.16 billion, $978 million of which is still outstanding.

“The downgrade is a direct result of a change in methodology at Fitch; it is in no means a change in the credit worthiness of the Bond Bank,” adds State Treasurer Catherine Provencher. “The Bond Bank Board, of which I am a member, has actually begun implementing more stringent criteria to bolster the credit worthiness of the pool of loans.”

In announcing the downgrade, Fitch explains that it has changed the way it assesses state revolving loan funds and leveraged municipal loan pools.

The rating downgrade reflects the transition from using revolving loan criteria to focusing on the security provided by the state’s moral obligation to replenish the debt service reserve fund.

State taxpayers are not on the hook for loans made through the NHMBB, but Provencher is authorized to intercept state and federal aid slated to go to towns in order to prevent default on their NHMBB bonds.

State support of the bond bank includes a provision to intercept state aid to participating municipalities in the event of a payment default to the bond bank. If any governmental unit fails to make a scheduled payment of principal or interest to the bond bank, the Chair must notify the State Treasurer who is required to intercept any funds due to that governmental unit for the remainder of the fiscal year, to the extent such funds are appropriated from the general fund or education trust fund of the state.

According to the NH Municipal Bond Bank’s 2011 Annual Report, it issued $36,185,000 in bonds that Fiscal Year, at true interest costs of 3.6%, 2.61% and 2.97%, both well below the going rate for other municipal debt at the time. The lower interest rates reflects greater demand among bond buyers for NH municipal debt and greater faith that the bonds will be repaid on time.

Standard and Poor’s gives the NHMBB a rating of AA, an Moddy’s Investor Service assigned a rating of Aa3. Instead of rating the Bond Bank solely on its own financial stability, Fitch linked it to the State of New Hampshire’s AA+ rating, which is above average among the 50 states. Fitch’s new methodology pegs municipal loan pools two notches below the State rating, if the State has a legal or moral obligation to back up the local debt. The AA- rating happens to be one notch below the previous AA given to the NHMBB, but does not reflect any weakening in the credit worthiness of New Hampshire cities and towns.