NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'A+' rating to Maine Municipal Bond Bank's (MMBB) $50 million series 2014A grant anticipation bonds (GARVEE). The bonds are issued to fund Maine Department of Transportation's (MaineDOT) replacement of the Sarah Mildred Long Bridge (SML Bridge) and the Penobscot River Bridge (PRB Bridge).
Fitch also affirms the 'A+' rating on $69.3 million of outstanding series 2004A, 2008A and 2010A&B grant anticipation bonds. The Rating Outlook remains Stable.
RATIONALE: The 'A+' rating is driven primarily by the strength of the federal transportation funding program. Although the program has become more dependent on transfers from the general fund and is no longer funded on a multiyear basis, it continues to be essential for the federal government. The 'A+' rating also reflects MaineDOT's pledge of all federal transportation funding which provide healthy debt service coverage ratios to mitigate risk of a potential reduction in federal revenues. Strong additional debt limitations and resources of the department to manage any delays or interruptions in federal funding support the rating.
KEY RATING DRIVERS:
UNCERTAINTY OF THE FEDERAL PROGRAM: In Fitch's view, the federal program, once formula driven and funded on a multiyear basis, has now morphed into a program where future policy is less certain. Funding levels are less predictable, and more frequent action is needed from Congress to extend authorization and on general fund transfers that will likely need to be continued indefinitely barring an increase in the federal gas-tax or a significant reduction in spending.
PROTECTION AGAINST LEVERAGE: The additional bonds test provides adequate legal protection against leverage by limiting maximum annual debt service (MADS) for each federal fiscal year within the current federal authorization period to 1.5x and 3.0x for each federal fiscal year outside of the current authorization period. Additionally, future GARVEE bond issuance requires legislative approval and annual debt service is statutorily limited to 15% of the three-year rolling average of federal transportation funds received less $25 million to be issued for any extraordinary capital needs.
HEALTHY DEBT SERVICE COVERAGE: Federal reimbursement receipts for 2014 totaled $210 million providing debt service coverage of over 13 times (x). Debt service schedule is flat to declining, annual debt service requirement decreases from $20.8 million in 2015 to $5.7 million by 2023. Final maturity will be extended to 2026 from 2022 following the issuance of the series 2014A bonds.
RESOURCES OF THE DEPARTMENT: Similar to other GARVEE programs, there is no debt service reserve fund. However, this is offset by MaineDOT's covenant to obligate each year's federal transportation funds for GARVEE debt service prior to any other purpose. Additionally, resources of MaineDOT could be available to manage any delays or interruptions in federal reimbursements, including the state's highway fund of approximately $25 million.
RATING SENSITIVITIES
Negative or Positive: A material change in Fitch's view of the federal program could change the current rating level.
Negative: Decisions by the state to significantly increase GARVEE leverage beyond current expectations could change the rating.
SECURITY
The bonds are secured by the trust estate, which primarily consists of all federal transportation funds, subject to their receipt and allocation by the state, and available in accordance to Title 23 of the U.S. Code.
TRANSACTION SUMMARY
Bond proceeds will be used to fund a portion of the cost to replace the Sarah Mildred Long Bridge (located between Kittery, Maine and New Portsmouth, Hampshire) and the Penobscot River Bridge. The SML Bridge replacement project is part of a bi-state solution between MaineDOT and New Hampshire Department of Transportation (NHDOT) to replace a critical link between the two states. MaineDOT will use $43 million of bond proceeds to fund the construction of the SML Bridge and $7 million for the PRB Bridge.
HTF's expenditures have been exceeding revenues over the past several years. The longer-term structural imbalance of the HTF was not addressed by the interim measure Congress passed in early August 2014. The recent legislation relies on $10.8 billion of general fund transfers to keep the program afloat through May 2015. While the continued general fund transfers have underscored the relative importance of transportation funding within the federal budget, they do not guarantee future commitments. Future funding levels beyond May 2015 will be hard to predict, but it is Fitch's view that significant changes are needed either on the expenditure side or on the revenue side to put the program on a sustainable trajectory. In addition, the increase in corporate fuel economy standards approved in August 2012 would adversely impact gas tax revenues which support the HTF going forward.
Fitch's sensitivity analysis assumes a 22% reduction in federal reimbursements to match the amount of receipts coming into the HTF. Under this scenario debt service coverage is expected to remain healthy at 7.9x in 2015 and then increase to 9.8x in 2016 and remain above this level as debt service requirements decline.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
-- 'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012);
-- 'Leveraging Federal Transportation Grants: Rating Criteria for GARVEE Bonds' (Aug. 15, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Leveraging Federal Transportation Grants: Rating Criteria for GARVEE
Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685504
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=913594
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