Fitch Rates California Public Works Board's $245M Bonds 'A'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'A' rating to the following lease revenue and revenue refunding bonds of the California State Public Works Board (SPWB):

--$52.4 million lease revenue bonds, (Department of Corrections and Rehabilitation) 2015 series A (Solano Jail);

--$22.1 million lease revenue bonds, (Judicial Council of California) 2015 series B (Los Banos Courthouse);

--$46.3 million lease revenue refunding bonds, (Department of Corrections and Rehabilitation) 2015 series C (Valley State Prison);

--$19.35 million lease revenue refunding bonds (Department of Corrections and Rehabilitation) 2015 series D (Kern Valley State Prison);

--$104.9 million lease revenue refunding bonds (Department of Corrections and Rehabilitation) 2015 series E (Centinela and Calipatria State Prisons).

The bonds will be sold via negotiated sale on April 9, 2015.

The Rating Outlook is Stable.

SECURITY

Lease rental payments made by state agencies to the SPWB from first lawfully available funds for use and occupancy of facilities, subject to annual state legislative appropriation.

KEY RATING DRIVERS

RATING LINKED TO STATE: The 'A' rating on lease revenue bonds, one notch below the State of California's general obligation (GO) rating, reflects the appropriation required for debt service payment and solid program mechanics.

CALIFORNIA'S GENERAL CREDIT QUALITY: The rating incorporates the size and breadth of the state's economy and tax base, a moderate debt load, and the institutional improvements made by the state in recent years that have contributed to improved financial performance. The state GO rating was upgraded to 'A+' from 'A' on Feb. 25, 2015.

RATING SENSITIVITIES

RATING LINKED TO STATE CREDIT QUALITY: The rating is sensitive to changes in the state's GO bond rating, to which this rating is linked.

CREDIT PROFILE

The SPWB is California's primary means of financing state facilities, with bonds benefiting from a strong lease structure and the essential nature of leased assets. Debt service is paid from lease rental payments made pursuant to specific project leases. Lease rental payments are appropriated annually by the legislature, with the lessee agency required to use the first funds lawfully available to it for lease payments on SPWB debt. Abatement is possible, but abatement risk is mitigated by a requirement to maintain rental interruption insurance.

The current series are being issued under series indentures pursuant to the master indenture, and thus benefit from access to the SPWB's $162 million master indenture reserve. Prior to this sale, the master indenture reserve backs approximately $10.37 billion in outstanding SPWB lease bonds issued under the master indenture and under incorporated indentures.

LINK TO GO RATING

The SPWB's bond rating is linked to the state's GO bond rating, at 'A+' with a Stable Outlook. The rating reflects the institutional improvements made by the state in recent years, its disciplined approach to achieving and maintaining structural balance in recent budgets, and the consequent fiscal progress made to date by the state as it recovers from the severe budgetary and cash flow crisis of 2008-2009. Fitch believes that these gains provide the state with a greater capacity to address future fiscal and budgetary cyclicality. These fiscal management improvements remain untested by a severe recessionary event, but in Fitch's view the state is in a materially improved position to address future economic and revenue cyclicality. However, California's credit standing is likely to remain lower than most states given its still relatively lower flexibility related to revenue limitations, the initiative process, spending formulas for education, etc. Key credit strengths include the state's massive, diverse economy and tax base.

For further information on California's GO rating, please see Fitch's press release from Feb. 25, 2015, 'Fitch Upgrades California GO to 'A+'; Outlook Stable', 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).

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981941

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Contacts

Fitch Ratings
Primary Analyst
Karen Krop
Senior Director
+1-212-908-0661
Fitch Ratings, Inc.
33 Whitehall Street
New York NY 10004
or
Secondary Analyst
Douglas Offerman
Senior Director
+1-212-908-0889
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Karen Krop
Senior Director
+1-212-908-0661
Fitch Ratings, Inc.
33 Whitehall Street
New York NY 10004
or
Secondary Analyst
Douglas Offerman
Senior Director
+1-212-908-0889
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com