Fitch Rates Rhode Island's $36MM COPs 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AA-' rating to the following State of Rhode Island and Providence Plantations' lease participation certificates:

--$11.5 million (Pastore Center energy conservation project - 2014 series A);

--$3 million (Rhode Island College energy conservation project - 2014 series B);

--$21.8 million (information technology project - 2014 series C).

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

The Rating Outlook is Stable.

SECURITY

Certificates are secured by lease rental payments to be made by the state subject to annual legislative appropriation.

KEY RATING DRIVERS

Appropriation Security: Bond payments for appropriation-backed debt (including the certificates) rely on annual legislative appropriations, resulting in a rating one notch below the state's GO rating.

Strong Fiscal Management: The state's financial operations are conservatively managed, and the state acts proactively to close budget gaps. The constitutionally mandated limits on budget appropriations of 97% of estimated revenue and 5% budget reserve contribute to fiscal stability.

Financial Performance Stabilizing: Following persistent weakening during the recession, the state's fiscal performance has steadily recovered. Preliminary fiscal 2014 results indicate a fifth consecutive year with general revenue operating surplus and tax revenue growth.

Moderated Liability Position: The state's debt position has moderated, with more disciplined debt issuance policies and cash funding of capital projects. While the state's combined burden of debt and unfunded pension liabilities is well above average, comprehensive 2011 pension reform significantly improved funded ratios while lowering annual required contributions.

Lagging Economic Indices: Rhode Island's economic performance continues to trail national trends, but the gap has narrowed somewhat in recent months. The state's economic decline was among the worst of the states during the downturn and the pace of recovery has lagged. Fitch Ratings anticipates continued below-average economic growth.

RATING SENSITIVITIES

Linked to GO Rating: The rating is sensitive to the state's 'AA' GO rating to which it is linked.

CREDIT PROFILE

The 'AA-' rating on the bonds is based on the credit quality of the state, as they are secured by lease rental payments to be made by the state pursuant to lease agreements and subject to appropriation. Payments are equivalent to debt service on the certificates, and are supported by a covenant on the part of the state to make all efforts to include the appropriate amounts in the legislatively enacted budget.

The state's 'AA' GO bond rating is based on conservative fiscal management, improved financial performance and a manageable debt position, offset by below-average economic growth. A deep recession and fragile recovery severely strained the state's financial position. However, since fiscal 2011, Rhode Island's general revenue taxes have increased every year, allowing the state to add to its rainy day fund and meet a higher statutory requirement. Preliminary fiscal 2014 results and the enacted fiscal 2015 budget forecast continued growth and maintenance of the rainy day fund at the statutory 5% of revenues. While Fitch anticipates modest revenue growth, Rhode Island's budget outlook assumes manageable structural gaps in the out-years that will require continued fiscal discipline.

For more information on the state's GO rating, please see the Fitch release titled 'Fitch Rates Rhode Island's $196.5MM GOs 'AA'; Outlook Stable'' dated Oct. 3, 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: Rhode Island's 38 Studios Moral Obligation Bonds Represent Limited Risk to State's Rating' (June 24, 2014);

--'Fitch Rates Rhode Island's $196.5MM GOs 'AA'; Outlook Stable' (Oct. 3, 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=903514

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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
Marcy Block
Senior Director
+1-212-908-0239
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
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
Marcy Block
Senior Director
+1-212-908-0239
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com