NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'AA+' rating on $50 million outstanding Idaho Housing and Finance Association (IHFA) unemployment compensation revenue bonds, series 2011.
The Rating Outlook is Stable.
SECURITY
Unemployment compensation revenue bonds are special, limited obligations of the IHFA secured by required payments of bond principal derived from the state's unemployment benefit account, which is funded by state unemployment benefit payroll taxes.
KEY RATING DRIVERS
PAYROLL TAXES SUPPORT BOND REPAYMENT: The 'AA+' rating is based on bondholders' claim on balances in the state's funds dedicated to ensuring unemployment benefits, which are funded by a broad state-wide unemployment payroll tax. Conservative structural features, including a very short final maturity (2015) and the fact that all interest and one-fourth of principal payments were set aside from existing balances at the time of bond issuance, strengthen the credit.
REFORMS IMPROVE SYSTEM SUSTAINABILITY: The state reformed its unemployment benefit system with bond issuance, raising the unemployment payroll tax rate to provide for both benefit payments and bond principal repayment. Although the state's unemployment payroll tax collections are not directly pledged to bondholders, revenues fund the accounts from which debt service payments are derived.
STRONG COVERAGE: Coverage of debt service by funds receiving payroll taxes is very strong for the remainder of the bond life. Unemployment rates in the state are continuing to decline, augmenting resources available for unemployment benefits and bond repayment.
NO ADDITIONAL BONDS: Funds in the state's unemployment benefit system are not accessible for other purposes and are continuously appropriated to bond repayment through maturity. No additional bonds are possible under this indenture.
WELL-ESTABLISHED UNEMPLOYMENT COMPENSATION SYSTEM: The state's system of assessing and collecting unemployment payroll taxes is well-established and has a strong collection history.
RATING SENSITIVITIES
CONTINUED SOLID COVERAGE: Resources of the employment security fund and employment security reserve fund provide solid coverage through final maturity of the bonds.
CREDIT PROFILE
The 'AA+' rating on the state of Idaho's unemployment compensation revenue bonds is based on the claim by bondholders on balances in the state's funds dedicated to ensuring unemployment benefits, which are funded by state unemployment payroll tax receipts. Credit quality is bolstered by conservative structural features and a very short maturity profile; the bonds fully amortize on Aug. 15, 2015. Although bondholders do not have a direct claim on the state unemployment tax (SUTA) or reserve payroll taxes, the trust estate includes all required payments derived from these sources.
Actual payroll tax collections since issuance have been well in excess of the original forecast assumptions. Coverage of 2014 principal and interest by prior quarter trust fund balances was 11.3x by Fitch's calculation, compared to 6.4x coverage projected at issuance. Fitch calculates that coverage will remain solid through maturity, with 2015 principal and interest covered 12.5x by June 30, 2015 balances.
The bonds were authorized by the state legislature in 2011 as part of a broader plan to improve the sustainability of the state unemployment benefit system. Bond proceeds repaid a federal advance totaling $202 million that was drawn to cover benefit funding shortfalls during the downturn.
The bonds were issued by IHFA, which issues primarily for housing purposes in the state, but has also served as a conduit for other purposes, including transportation.
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 Bureau of Labor Statistics, Idaho Department of Labor, and Idaho Division of Financial Management.
Applicable Criteria
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. State Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=988831
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988831
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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