Fitch Rates Virginia Public School Auth's School Financing Bonds (1997 Resolution) Ser 2014C 'AA+'

NEW YORK--()--Fitch Ratings assigns an 'AA+' rating to Virginia Public School Authority's (VPSA) $82 million school financing bonds (1997 resolution) series 2014 C.

The bonds are expected to sell via competition on or about Oct. 29, 2014.

The Rating Outlook is Stable.

SECURITY

VPSA school financing bonds are secured by general obligation (GO) bond payments from participating localities that are pledged by the authority to the bonds. A sum-sufficient appropriation for any shortfalls in debt service that is available from the commonwealth of Virginia's literary and general funds enhances credit quality and provides the basis for the rating.

KEY RATING DRIVERS

COMMONWEALTH APPROPRIATION OBLIGATION: The 'AA+' rating on the VPSA bonds, one notch below the commonwealth's 'AAA' GO rating, is based on the availability of a 'sum sufficient' appropriation for debt service deficiencies from the commonwealth's literary fund and, if necessary, the general fund.

CONSERVATIVE FINANCIAL MANAGEMENT: The commonwealth's financial operations are conservatively managed with periodic revenue forecast updates and a constitutional revenue stabilization fund (RSF). The commonwealth has a history of making prompt adjustments to respond to fiscal uncertainties.

DIVERSE ECONOMY WITH HIGH WEALTH LEVELS: The commonwealth benefits from a diverse economy with relatively low unemployment and high wealth levels. As anticipated, federal government contraction weakened economic growth trends though Fitch still views Virginia's economic profile as strong.

MODERATE LIABILITY LEVELS: Virginia's debt ratios are in the moderate range, maintained through deliberate policy and above-average amortization. Capital needs for education and transportation improvements remain significant and issuance has accelerated in recent years. While the funded status of Virginia's retirement system declined in recent years, due in part to an underfunding of actuarially calculated annual required contributions (ARC) to the system, unfunded liabilities as a percentage of personal income remain below average for U.S. states.

RATING SENSITIVITIES

GO-LINKAGE FOR APPROPRIATION BONDS: The rating on the bonds is sensitive to changes in the commonwealth's GO rating, to which it is linked.

CREDIT PROFILE

The series 2014 C bonds are being issued pursuant to the 1997 resolution, which includes a 'sum sufficient' appropriation from available moneys of Virginia's literary fund and, if those are not adequate, the commonwealth's general fund. The appropriation, which the governor must request from the general assembly pursuant to statute, provides credit enhancement to the local government loan repayments that are the primary source of security. Additional strength derives from state law providing for the withholding of state payments to local governments in the event of a local loan payment default, along with Virginia's fundamental credit strengths and the state commitment to education.

Under the 1997 resolution, the commonwealth uses VPSA bond proceeds to purchase GO bonds issued by commonwealth localities for school capital projects. Local repayments of principal and interest on the locally issued GO bonds will be used to pay debt service on the VPSA school financing bonds. No local government has defaulted in VPSA's history, but in the event of a default, state law requires the intercept of state payments due to the local unit until the default is cured. Local payments are due approximately 15 days in advance of bond payments, allowing time for implementation of the intercept. Finally, if required, the sum-sufficient appropriation would be used.

Virginia's 'AAA' GO rating reflects its solid fiscal resources, conservative approach to financial operations which includes periodic revenue forecast updates, strong fundamental economic profile, and moderate liability levels. Economic and revenue performance underperformed notably in fiscal 2014 compared to earlier forecast expectations, the result of both the continuing timing impact of 2013 federal tax law changes on state tax filers and the commonwealth's exposure to ongoing federal contraction. Virginia addressed the resulting $438 million revenue gap in fiscal 2014 largely through use of ending fund balances. The commonwealth left its revenue stabilization fund untapped in fiscal 2014, and instead made its constitutionally required deposit of $244.6 million, bringing its balance to $687.5 million (inclusive of projected interest earnings).

For more information on the commonwealth's GO rating, please see the Fitch release titled 'Fitch Rates Virginia College Bldg Auth's $291MM Revs 'AA+'; Outlook Stable', dated Oct. 17, 2014 and available at 'www.fitchratings.com'.

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

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from IHS.

Applicable Criteria and Related Research:

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

--'Fitch Rates Virginia College Bldg Auth's $291MM Revs 'AA+'; Outlook Stable' (Oct. 17, 2014).

Applicable Criteria and Related Research:

U.S. State Government Tax-Supported Rating Criteria

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=903454

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Contacts

Fitch Ratings
Primary Analyst
Eric Kim
Director
+1-212-908-0241
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Laura Porter
Managing Director
+1-212-908-0575
or
Committee Chairperson
Douglas Offerman
Senior Director
+1-212-908-0889
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Eric Kim
Director
+1-212-908-0241
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Laura Porter
Managing Director
+1-212-908-0575
or
Committee Chairperson
Douglas Offerman
Senior Director
+1-212-908-0889
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com