Fitch Rates Alaska's $29MM Sport Fishing Refunding Revenue Bonds 'A+'; Outlook Stable
NEW YORK--()--Fitch Ratings assigns an 'A+' rating to $29.225 million State of Alaska's sport fishing revenue bonds, consisting of the following:
--$29.225 million State of Alaska sport fishing refunding revenue bonds, series 2011.
The bonds are expected to sell via negotiation the week of Nov. 28, 2011. In addition, Fitch affirms its 'A+' rating on approximately $19.6 million in outstanding state sport fishing revenue bonds.
The Rating Outlook is Stable.
The bonds are special, limited obligations of the state secured by a surcharge on sport fishing licenses, and to the extent those are insufficient, receipts from base sport fishing licenses, king salmon stamps, and certain federal grant funds.
KEY RATING DRIVERS
STRONG LEGAL PROTECTIONS: The bond resolution provides for segregation of pledged revenues until minimum balances are met with any excess used to redeem callable bonds. A two-tiered additional bonds test, reserve fund at maximum annual debt service, and state non-impairment covenants provide bondholder protection.
NARROW PLEDGED REVENUE SOURCE: The pledged revenue stream is relatively narrow and heavily influenced by discretionary tourist activity in the state.
ADEQUATE DEBT SERVICE COVERAGE: Coverage of debt service requirements by pledged revenues has declined the past three years as fishing activity in the state experienced a falloff due to declining tourism and lower than average salmon runs but remains adequate. Fitch expects pledged revenue growth to remain anemic, while still providing satisfactory coverage of debt service.
The 'A+' rating on the bonds is based on the strong protections built into the bond resolution. Pledged revenues include a surcharge on sport fishing licenses, put in place on Jan. 1, 2006 explicitly to support the debt, providing just over sum sufficient coverage, as well as base sport fishing license revenues, king salmon stamp fees, and federal grant funds that support the state's sport fishing activities. A debt service reserve fund provides additional protection, and no further debt issuance is planned; the current issue is a refunding for debt service savings. The additional bonds test (ABT) is two-tiered, requiring 1.5 times (x) coverage of maximum annual debt service (MADS) by pledged surcharged revenue and 2.25x coverage of MADS by all pledged revenue, excluding federal grant revenue. Of note, the first tier of the ABT is not currently being met, as MADS coverage from calendar 2010 surcharge revenue was only 1.12x.
The sport fishing industry is heavily impacted by tourism; 73% of license revenue and 74% of king salmon stamp revenue are from nonresidents. The state estimates the combined impact of commercial and sport fishing to the state's economy at $7.4 billion per year. The decline in tourism in 2009, 2010, and 2011 from the recent recession, and a decline in king salmon production in 2010, resulted in considerable declines in surcharge and total pledged revenues, as fewer people purchased these licenses. The average annual decline in pledged revenues between calendar years 2007 through 2010 was 5.6%.
Surcharge revenue alone in calendar 2010 provided a narrow 1.17x coverage of $5.1 million in debt service, down from 1.3x in calendar 2007. When all other pledged revenue is considered, however, coverage improves to a solid 3.86x. MADS, which occurs in calendar 2026, is 1.12x from surcharge revenue and 3.7x from all pledged revenue. The additional pledged revenues of federal grants, sport fishing license fees, and king salmon stamp fees provide additional support to bond repayment. The portion of federal grants that are eligible to be pledged to the bonds are available for principal repayment only. Fitch expects pledged revenue in calendar 2011 to be comparable to 2010 based on actual receipts through October. Fitch also expects that the weak revenue trend will continue until tourism rebounds in the state, yet debt service coverage by all pledged revenues should remain adequate, even with a continuation of the recent declines.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Posted: November 21, 2011