NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA' rating to $8.635 million Alaska Municipal Bond Bank (bond bank) general obligation (GO) bonds, 2011 series one. The bonds are expected to sell via negotiated sale on or about Feb. 15.
In addition, Fitch affirms the following ratings:
--Approximately $444 million in outstanding parity bond bank GO bonds at 'AA'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The State of Alaska (the state) includes as part of its annual debt service appropriation in its 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.
--The state's own GO bonds are rated 'AA+' with a Stable Rating Outlook by Fitch.
KEY RATING DRIVERS:
--Continued support of the program by the state in the form of annual appropriations for potential reserve fund replenishment;
--Changes in the state's GO rating, on which this rating is based.
SECURITY:
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.
CREDIT SUMMARY:
The 'AA' rating is based on the state's commitment to GO bonds of the bond bank issued under the 2005 GO resolution in the form of an appropriation of general funds for program reserve fund replenishment. GO bonds of the bond bank issued under the 2005 resolution incorporate 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 for the 2005 resolution bonds, currently funded at almost $31 million, backed by a moral obligation of the state to seek a general fund appropriation in event of a borrower's payment default.
The bond bank was established in 1975 to provide access to low cost capital financing for Alaska local governments. Approximately $452.6 million in 2005 GO resolution bonds will be outstanding following this sale; the new bonds are the 18th under the 2005 GO resolution. The moral obligation was strengthened by inclusion in the state's 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 a bond bank custodian account, funded at nearly $5.7 million as of June 30, 2010. In Fitch's view, the state's standing appropriation for program reserve replenishment in advance of any draw links the credit of the 2005 GO resolution bonds directly to the state; Fitch rates the state's GO bonds 'AA+'. The 2005 GO resolution replaced a prior 1976 GO resolution and a separate revenue bond program. A 2010 GO resolution also was established last year for certain borrowers.
Bond bank borrowers must demonstrate project essentiality and ability to repay to access financing. The current bonds are for projects in two 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. Program reserve funding is required at the IRS maximum; the balance is cash 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 is incorporated into the state's annual budget, as 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 press release of Nov. 19, 2010, 'Fitch Rates Alaska GOs 'AA+'; Outlook Stable,' available at 'www.fitchratings.com'.
Applicable Criteria and Related research:
--'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
--'U.S. State Government Tax-Supported Rating Criteria', dated Oct. 8, 2010;
--'State Credit Enhancement Program Criteria', dated Dec. 16, 2009.
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564546
State Credit Enhancement Program Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=491794
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.