NEW YORK--()--Fitch Ratings assigns an 'AA-' rating to the following Connecticut Higher Education Supplemental Loan Authority (CHESLA) revenue bonds issued under its 1990 resolution and secured by a state special capital reserve fund:
--$25 million CHESLA revenue bonds (CHESLA loan program), 2013 series A.
The bonds are expected to sell via negotiated sale on March 19.
In addition, Fitch affirms the following outstanding ratings secured by a state special capital reserve fund:
--$78.6 million in outstanding CHESLA revenue bonds issued under the
1990 resolution, at 'AA-';
--$1.5 million CDA general obligation bonds, series 1993A, affirmed at 'AA-'.
The Rating Outlook is Stable.
Special obligations of the authority issued under the 1990 indenture are secured by education loan repayments and by other funds held by the trustee, including a special capital reserve fund equal to maximum annual debt service. In the event of a draw on the fund, the state deems appropriated from its general fund an amount necessary to replenish the special capital reserve fund.
KEY RATING DRIVERS
RATING LINKED TO STATE GO: The 'AA-' rating on bonds carrying a special capital reserve fund (SCRF), including CHESLA's 1990 resolution bonds, reflect the state's pledge to fund the SCRF without requiring further legislative approval. Thus SCRF bonds' credit quality is linked to the state's 'AA' general obligation (GO) rating.
HIGH WEALTH LEVELS: Connecticut is the nation's wealthiest state as measured by per capita personal income. Economic recovery has been slow and uneven since the recession.
CYCLICAL REVENUES AND SPENDING PRESSURE: State revenue performance is cyclical, while high fixed costs limit its ability to respond during revenue downturns. The state's practice of borrowing to close deficits further limits flexibility.
HISTORICAL WILLINGNESS TO BUILD BALANCES: During past economic recoveries the state has demonstrated a willingness to rapidly repay deficit borrowing and rebuild it rainy day balance, although this has not been possible in the current recovery.
HIGH DEBT: Tax-supported debt is high for a U.S. state. Most GO bonds, excluding GO bonds issued to fund the teachers' retirement system, amortize rapidly.
SIGNIFICANT PENSION OBLIGATIONS: Unfunded liabilities for employees are significant, including for state employee and teacher pensions. The state has taken steps to reform retiree pension and health liabilities.
The rating is sensitive to changes in the State of Connecticut's GO bond rating.
The 'AA-' rating on bonds carrying a SCRF reflects the 'AA' rated GO credit quality of the State of Connecticut. The SCRF mechanism is a longstanding means for the state to provide additional security for various state authorities and municipalities on a contingent basis. Approximately $4 billion in debt is outstanding carrying the SCRF pledge. Use of a SCRF is legislatively authorized and overseen by the state's treasurer. The SCRF is typically funded at a minimum of maximum annual debt service, as is the case with CHESLA's revenue bonds issued under the 1990 resolution. In the event of a draw, the authority or local government must certify an insufficiency to the state budget director and treasurer, and an amount to replenish the SCRF is deemed appropriated on or before Dec. 1 without further legislative approval.
Connecticut's 'AA' GO rating reflects its vast wealth and income resources, tempered by a comparatively high burden of debt, retirement liabilities and other fixed costs. Despite a diverse and wealthy economy, the state's economic recovery has been slow, and revenue collections have materially underperformed forecast even as Medicaid and other costs exceed budget. In the current biennium ending June 30, the state has repeatedly taken quick balancing actions, most recently through spending cuts, but the general fund remains only narrowly balanced through the forecast period.
For additional information on the State of Connecticut, please see www.fitchratings.com.
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 Fitch's 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. 14, 2012);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria