Fitch Affirms Wisconsin Petroleum Fee Bonds at 'AA'; Affirms Notes at 'F1+'

NEW YORK--()--Fitch Ratings affirms the ratings on the following State of Wisconsin (the state) petroleum fee revenue bonds and notes:

--$68 million petroleum fee revenue bonds at 'AA';

--$71.2 million petroleum fee extendible municipal commercial paper (EMCP) at 'F1+'.

The Rating Outlook on the long-term bonds is Stable.

SECURITY

Senior bonds (including long-term bond principal and interest and EMCP interest) are payable from petroleum inspection fee revenues, which are paid by suppliers on all petroleum products received for sale in the state of Wisconsin.

EMCP principal is secured by a junior, subordinate lien on petroleum inspection fees, and ultimately, the state's pledge to sell senior refunding bonds already authorized to the payment of principal on the EMCP.

KEY RATING DRIVERS

SATISFACTORY COVERAGE: Inspection fees have consistently provided satisfactory coverage of debt service.

CYCLICAL REVENUES: Inspection fees are collected as part of other motor fuel tax collections and distributed monthly to the trustee. Revenues are subject to cyclicality tied to consumption and economic conditions.

NO NEW ISSUANCE EXPECTED: New issuance is not expected, although additional bonds are effectively limited by a 2 times (x) additional bonds test. Long-term bonds may be issued to take out maturing EMCP.

EMCP LINKED TO REVENUE BONDS: The 'F1+' rating assigned to the EMCPs corresponds to the long-term rating on the state's petroleum inspection fee bonds. The EMCP notes are subject to variable rate interest risk, although a variable-rate takeout capacity test is required monthly, with submission of a corrective action plan within 45 days if necessary.

RATING SENSITIVITIES

DEBT SERVICE COVERAGE: The rating is sensitive to ongoing maintenance of solid coverage by pledged revenue.

CREDIT PROFILE

The bonds and EMCP are secured by a per-gallon petroleum inspection fee paid by suppliers on all petroleum products received for sale in Wisconsin. The per gallon fee, levied at $0.02, is collected along with other motor fuel taxes by the department of revenue. They are distributed on a monthly basis to the bond trustee to pay debt service and residual revenues are used for program expenses.

SATISFACTORY COVERAGE FOR CYCLICAL REVENUE

Collection trends reflect consumption and economic trends. After modest recessionary declines, petroleum inspection fees rose slightly in fiscal 2011 and fiscal 2012 before declining once again in fiscal 2013 and 2014, by 3.3% and 1% respectively. Coverage of MADS ($33.3 million in fiscal 2014) by pledged revenues has remained sound, with fiscal 2014 actual receipts covering MADS 2.43x. Annual coverage by expected fiscal 2015 revenues likewise is 2.18x. The state forecasts future collections based on a five-year average of actual revenues, currently $72.8 million, a level which would provide annual coverage going forward at the same level. Revenues would need to decline 22% annually through final maturity on July 1, 2017 to meet one-times MADS coverage.

Factors mitigating the cyclicality of the revenues pledged to the bonds and the interest rate risk associated with variable-rate EMCP include an additional bond issuance test (ABT) and a variable-rate capacity test. The ABT requires 2x coverage of MADS by historical revenues. The variable-rate capacity test requires monthly completion calculation of the amount of variable-rate debt that could be funded by senior petroleum inspection fee revenue bonds while maintaining 2x debt service coverage.

NO NEW ISSUANCE EXPECTED

The last issuance under the program, for refunding, took place in 2009. Other than long-term bonds that may be issued to refund outstanding EMCP, no new bonds are authorized and new money issuance would require legislative action. The bonds are scheduled to mature between fiscal years 2015-2018, with the notes maturing on the final maturity of the bonds or thereafter.

Proceeds were used to reimburse owners of petroleum storage tanks for 75%-99% of soil and groundwater contamination cleanup costs under a program in place since 1987. When bonding for the program began in 2000, the backlog of approved but unpaid remediation claims was about $200 million. As of Dec. 2014, all unpaid claims have been settled with no claims under review.

Underlying the 'F1+' rating on the EMCP is the credit quality of the senior petroleum inspection fee revenue bonds to be issued to ultimately fund the EMCP and the market access of such bonds demonstrated in previous bond sales. Interest payments on the EMCP are paid on parity with the bonds' debt service, while principal payments are subordinate. The state intends, but is not obligated, to pay CP note principal on the original maturity date from proceeds of rollover notes. However, the state may extend the maturity to 270 days from the original issuance date in the event of a loss of market liquidity and accordingly there is no liquidity provider.

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 U.S. Municipal Short-Term Debt' (Jan. 7, 2015).

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 U.S. Public Finance Short-Term Debt

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=846969

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984160

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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
Christina Lin
Analyst
+1-212-908-0548
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
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
Christina Lin
Analyst
+1-212-908-0548
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com