Fitch Affirms 'F1+' Rating on Southern Ute Indian Tribe (CO)

NEW YORK--()--Fitch Ratings has affirmed its 'F1+' short-term rating on the following bonds issued by the Southern Ute Indian Tribe (SUIT) of the Southern Ute Indian Reservation, CO:

--$69 million tax-exempt adjustable-rate bonds series 2001;

--$127 million taxable adjustable-rate bonds series 2007;

--$110 million taxable adjustable-rate bonds series 2010.

SECURITY

The bonds are general obligations of SUIT.

KEY RATING DRIVERS

LIQUIDITY PROFILE AFFORDS FLEXIBILITY: The 'F1+' rating is secured by SUIT's sufficient cash and highly liquid investment balances in excess of 125% of outstanding variable rate demand obligation debt. Sound internal procedures for the timely access to and transfer of internal funds in event of a failed remarketing further anchors rating confidence.

COMPREHENSIVE,CONSERVATIVE POLICIES: Management's diligence in following financial policies that strictly separate governmental assets from business enterprise operations and disciplined investment practices in preserving capital by utilizing endowment-centric allocations results in a sizeable cash and investment asset base. These resources are expected to support governmental obligations to the members in perpetuity.

RATING SENSITIVITY

FINANCIAL DETERIORATION: Erosion to SUIT's internal resource base so that internal resources of the tribe are insufficient to service their variable-rate obligations by at least 1.25x would put downward pressure on the short-term rating.

CREDIT PROFILE

SUIT (general obligation [GO] bonds rated 'AAA' Stable Outlook by Fitch) is a federally recognized tribe with 1,489 members and a reservation totaling approximately 350,000 acres in southwestern Colorado. SUIT operates pursuant to a tribal constitution originally adopted in 1936. The governing body is the seven-member SUIT tribal council, which is elected at large by the tribal membership to serve staggered three-year terms. SUIT provides significant governmental services to its membership, including education, social, health and family services.

DIRECT-DEBT LEVELS UNCHANGED, ADDITIONAL DEBT EXPECTED TO BE NON RECOURSE

Outstanding GO debt includes series 2001, 2007 and 2010 adjustable-rate bonds totaling $305 million and are payable from all government assets, domiciled in the Permanent Fund (PF). The adjustable-rate bonds mature in 2027, 2031 and 2040 and feature swaps expiring in 2026, 2027 and 2030, respectively. The swap fair market value reflected a $66 million liability as of fiscal 2013.

SUIT provided a limited waiver of sovereign immunity within the bond indenture for the purposes of offering bond holders recourse against pledged assets. The indenture limits GO debt to 40% of the net assets of SUIT's primary government activities. As of fiscal 2013, the governmental net assets reflected sufficient cushion under the threshold. The PF also maintains liability for a revolving credit facility with a $200 million commitment at the Growth Fund (GF). There is no draw outstanding on the facility which is due to expire and will be renewed in July of 2014.

'F1+' RATING SUPPORTED BY ADEQUATE LIQUIDITY

The adjustable-rate bonds are subject to optional tenders by investors. SUIT is providing an internal liquidity facility in the form of a standby bond purchase agreement, under which it is obligated to purchase bonds which are tendered and are not successfully remarketed. As of Feb. 27, 2014, SUIT's liquid investments, consisting primarily of money market funds, plus U.S. government and agencies securities, and investment grade U.S. corporate bonds, totaled $513 million (after discounts based on asset type and maturity per Fitch's short-term rating criteria). These liquid assets would cover the tribe's $305 million of variable-rate demand bonds by 1.68x, exceeding the 1.25x coverage Fitch expects for an 'F1+' rating.

STABLE LIQUIDITY REFLECTS CONSERVATIVE INVESTMENT STRATEGY

SUIT's unrestricted cash and investments, defined as available funds totaled a strong $2.1 billion at fiscal year-end (FYE) 2013. This prolific balance sheet resource constituted over 20x annual operating expenses and nearly 5.5x long-term debt. This cushion is atypically strong for similarly rated public finance credits that maintain robust balance sheets, namely similarly rated colleges and universities.

Investment performance for SUIT has generally tracked the market. The FY13 return was equal to 11.2% while the return year to date has been lower at 5.8%. SUIT's investment return over the past decade averaged 7.5% and as of February 2014 represented an alternative asset allocation of approximately 23%. Compared to Fitch's 'AAA' rated private colleges and universities in the portfolio, which include higher alternative asset allocations (50% or more) and may demonstrate higher average returns, SUIT's allocation appears conservative.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria', dated May 2013;

--'U.S. College and University Rating Criteria', June 2013;

--'Criteria for Assigning Short-Term Ratings Based on Internal Liquidity', dated December, 2013;

--'Fitch Affirms Southern Ute Indian Tribe's GOs at 'AAA/F1+'; Outlook Stable', dated March 2013.

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708049

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=823862

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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings, Inc.
Primary Analyst
James George, +1-212-908-0652
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Colin Walsh, +1-212-908-0767
Director
or
Committee Chairperson
Jessalynn Moro, +1-212-908-0608
Managing Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings, Inc.
Primary Analyst
James George, +1-212-908-0652
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Colin Walsh, +1-212-908-0767
Director
or
Committee Chairperson
Jessalynn Moro, +1-212-908-0608
Managing Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com