Fitch Rates Alaska Municipal Bond Bank GOs 'AA-'; Outlook StableNEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' rating to $28.01 million Alaska Municipal Bond Bank (bond bank) general obligation (GO) bonds, consisting of:
--$19,605,000 GO bonds, 2010A series one (tax-exempt bank qualified);
--$8,400,000 GO bonds, 2010B series one (taxable).
Par amount of each series will be determined on final sale, expected via negotiation the week of Feb. 22.
In addition, Fitch affirms the following ratings:
--Approximately $45 million in outstanding parity bond bank GO bonds at 'AA-'.
The Rating Outlook is Stable.
--The State of Alaska includes as part of its annual debt service appropriation in the state operating budget an appropriation for reserve fund replenishment in the event of a draw related to default by a participating municipality (borrower).
--The bond bank has a strong repayment history and there is demonstrated state support for the program.
--Borrowers make a full faith and credit or revenue pledge to the bond bank for loan repayment.
--In the event of a borrower default on debt service payments to the bond bank, state aid to the municipality is intercepted.
--The state's own GO bonds are rated 'AA', Rating Outlook Stable.
KEY RATING DRIVERS:
--Continued support of the program by the State of Alaska in the form of annual appropriations for potential reserve fund replenishment.
--Changes in the state's credit profile.
General obligations of the bond bank, for which the state also maintains a standing appropriation of state general fund resources to replenish the bonds' reserve fund in the event of borrower default.
The 'AA-' rating is based on the state's commitment to the program in the form of an appropriation of general funds for program reserve fund replenishment. GO bonds of the bond bank are issued under a 2005 resolution that incorporates multiple layers of security on both the borrower level and state level. Issuance requires either a borrower's GO or revenue pledge, with a borrower reserve available for revenue bonds. The bond bank also maintains a pooled program reserve fund, currently funded at $22.3 million, backed by a moral obligation of the state to seek a general fund appropriation in event of a borrower's payment default.
The moral obligation has been strengthened by inclusion in the annual budget, beginning in fiscal 2010, of an appropriation to restore any deficiency in the program reserve fund. Further protections include a state intercept of local aid for borrowers, and the ability to access an AMBB custodian account, currently funded at $6.1 million. In Fitch's view, the state's enactment of the appropriation for program reserve replenishment in advance of any draw links the credit of the program directly to the state; Fitch rates the state's GO bonds 'AA'.
The bond bank was established in 1975 to provide access to low cost capital financing for Alaska local governments. The 2005 GO resolution replaced a prior 1976 GO resolution and a separate revenue bond program. Approximately $323 million in 2005 GO resolution bonds will be outstanding following this sale; the new bonds are the 15th under the 2005 GO resolution. Borrowers must demonstrate project essentiality and ability to repay to access financing. The current bonds are for projects in five Alaska communities.
Payment by the borrower is due seven days prior to debt service payment; there have been no payment defaults under the program to date. Under such a scenario, the trustee would draw from the program reserve while the state pursues intercept of available state aid. Program reserve funding is required based on one of three tests, currently 125% of average annual debt service. The $22.3 million balance was funded by bond proceeds and bond bank resources, although external enhancement may be used. State statute requires the bond bank chair to certify annually the sum necessary to restore the program reserve to the required level. The appropriation for program reserve replenishment was incorporated into the enacted fiscal 2010 budget with appropriations for the state's own GO and lease-backed debt. A supplemental resolution requires the bond bank to seek the appropriation annually.
The state's 'AA' GO rating reflects its moderate debt, conservative financial planning, and very substantial reserve balances. Risks include the volatility inherent in state revenues, which fluctuate significantly with oil prices and production; the state levies no personal income or general sales taxes. Longer-term challenges include the forecasted slow decline in existing oil production and the state's ability to offset it with new oil production, as well as progress toward building a long-planned natural gas pipeline. For further information on the state, please see Fitch's report of April 1, 2009, 'State of Alaska,' available at www.fitchratings.com.
Applicable criteria available on Fitch's website.
--'Tax-Supported Rating Criteria', dated Dec. 21, 2009.
--'U.S. State Government Tax-Supported Rating Criteria', dated Dec. 28, 2009.
--'State Credit Enhancement Program Criteria', dated Dec. 16, 2009.
Posted: February 12, 2010
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