Fitch Rates Alaska Municipal Bond Bank Authority's $58MM GOs 'AA+'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AA+' rating to $57.565 million of Alaska Municipal Bond Bank Authority (bond bank) general obligation (GO) and refunding bonds, 2014 series three, issued under the bond bank's 2005 GO bond resolution.

The bonds are expected to sell via negotiation during the week of Sept. 23, 2014.

The Rating Outlook is Stable.

SECURITY

The bonds are 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. This standing appropriation is the basis for the assigned rating on the 2005 resolution bonds.

KEY RATING DRIVERS

STATE ANNUAL APPROPRIATION: The state of Alaska 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), resulting in a rating one notch below the state's 'AAA' GO rating.

PROVEN STATE SUPPORT AND STRONG REPAYMENT HISTORY: The bond bank's programs have a solid history of debt repayment, and the state of Alaska has a demonstrated history of support for and involvement with the bond bank. The bond bank has consistently worked with the state to strengthen bondholder protections while achieving its programmatic goals. The state's own resources are substantial.

MULTIPLE LAYERS OF SECURITY: Multiple layers of security support bond bank issues in the event of a local government's failure to pay debt service on its obligations to the bond bank. Security enhancements include issuer reserve funds, bond bank reserve funds, the state's standing appropriation for reserve fund replenishment, the state's statutory moral obligation, and the bond bank's statutory authority to intercept aid to local governments. Coverage of maximum annual debt service by state aid is substantial.

RATING SENSITIVITY

The rating is sensitive to movement in the state of Alaska's GO bond rating to which it is linked.

CREDIT PROFILE

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 a standing appropriation of general funds for program reserve fund replenishment. GO bonds of the bond bank issued under the 2005 resolution also incorporate multiple layers of security on both the borrower level and state level. Issuance requires either a borrower's GO or revenue pledge or other evidence of pledged revenues for allowable debt obligations, with a borrower reserve available for revenue bonds. Bond bank borrowers must demonstrate project essentiality and ability to repay to access financing. The current bonds will fund three separate local government project loans and refund outstanding bonds issued by the bond bank.

The bond bank maintains a pooled program reserve fund for the 2005 resolution bonds, funded at approximately $48.45 million as of Sept. 2, 2014, backed by a moral obligation of the state established by state statute requiring establishment of a reserve and that the bond bank seek a general fund appropriation in the event of a borrower's payment default. This pledge was strengthened with the bond bank's commitment to seek a standing appropriation for these bonds and the state's subsequent appropriation, beginning in fiscal 2009.

The bond bank was established in 1975 to provide access to low-cost capital financing for Alaska local governments. Not inclusive of the current sale, approximately $841.4 million in 2005 GO resolution bonds are currently outstanding. Legislation enacted in the 2014 legislative session increased the bond bank's limit for total bonds outstanding at any one time to almost $1.6 billion from the prior $1 billion; not including the current sale, the total amount outstanding as of Sept. 1, 2014 was approximately $913.1 million, inclusive of debt issued under a 1976 bond resolution and other obligations. The same legislation also authorized the bond bank to lend up to $87.5 million to the University of Alaska for heating and energy projects, secured by a revenue pledge from the university; this approval is included in the newly increased authorization. Fitch believes these changes do not have an adverse effect on the bond bank's credit quality.

As noted above, the moral obligation for the bonds was strengthened by inclusion in the state's annual budget, beginning in fiscal 2010, of an appropriation to restore any deficiency in the 2005 program reserve fund. Further protections include a state intercept of local aid for borrowers and the ability to access a bond bank custodian account. The custodian account, bolstered by recent state deposits, prior reserve releases, and funded at approximately $17.8 million as of June 30, 2014, is expected to be utilized for deposits to the pooled program reserve fund on this, and upcoming, bond issues.

Payments by the borrowers are 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, and reserves are currently 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 included in the state's annual operating budget. A supplemental resolution for the 2005 resolution bonds requires the bond bank to seek the appropriation annually.

The state's 'AAA' GO rating reflects its very substantial reserve balances, conservative financial planning, and moderate debt levels. 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 or increased economic diversification.

For further information on the state, please see 'Fitch Rates Alaska's $31MM COPS 'AA+'; Affirms Outstanding GOs at 'AAA' dated Aug. 11, 2014, which is available at 'www.fitchratings.com'.

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

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'Rating Guidelines for Moral Obligations' (April 18, 2013).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

Rating Guidelines for Moral Obligations

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=704882

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=867214

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Contacts

Fitch Ratings
Primary Analyst
Marcy Block
Senior Director
+1 212-908-0239
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Douglas Offerman
Senior Director
+1 212-908-0889
or
Committee Chairperson
Karen Krop
Senior Director
+1 212-908-0661
or
Media Relations, New York
Elizabeth Fogerty
+1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Marcy Block
Senior Director
+1 212-908-0239
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Douglas Offerman
Senior Director
+1 212-908-0889
or
Committee Chairperson
Karen Krop
Senior Director
+1 212-908-0661
or
Media Relations, New York
Elizabeth Fogerty
+1 212-908-0526
elizabeth.fogerty@fitchratings.com