Fitch Affirms Montana Board of Investments Guaranteed Bonds at 'AA'
NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the following ratings on bonds of the Montana Board of Investments (MBOI) and Montana Facility Finance Authority (MFFA):
--$106,450,000 MBOI INTERCAP revolving program bonds, at 'AA/F1+';
--$114,120,000 MFFA master loan program and Montana Development Center bonds, at 'AA'.
The Rating Outlook is Stable.
Security for both bond programs is based on the irrevocable and absolute pledge of the MBOI to replenish debt service reserve shortfalls from the MBOI's legally available resources. Additionally, MBOI irrevocably agrees to provide liquidity support for tendered INTERCAP program bonds.
KEY RATING DRIVERS
STRONG REPLENISHMENT MECHANISM: Both programs benefit from the board's unconditional pledge to cure deficiencies from legally available funds in advance of the debt service payment date.
BOARD'S RESOURCES AMPLE: The board's resources available for enhanced programs are far in excess of total bond principal, supporting the long-term 'AA' rating. Board resources additionally provide ample liquidity to purchase tendered INTERCAP revolving program bonds, supporting the short-term 'F1+' rating on the INTERCAP revolving program.
SIGNIFICANT INCREASES IN BOARD BALANCES: Available funds have risen considerably in recent years in concert with the improved financial position of the state of Montana (GO bonds rated 'AA+', Stable Outlook by Fitch). Funds remain vulnerable to fluctuations outside the board's control.
LIMITS ON DEBT: There are statutory and policy limits on the amount of long- and intermediate-term debt that can be secured by the board's pledge.
NO DRAWS FOR RESERVE REPLENISHMENT: Both programs have a strong repayment history from underlying loans, with no borrower defaults to date, no draws on the debt service replenishment provision and no reliance on the board's liquidity for the INTERCAP revolving program.
MONTANA ECONOMIC PERFORMANCE: Loans of the authority and the board are concentrated in a state whose economy, though diversifying, continues to be resource-dependent and prone to cyclicality.
CONTINUED AMPLE BALANCES: The ratings are sensitive to continued maintenance of ample MBOI balances available for debt service replenishment for both INTERCAP revolving program bonds and master loan program bonds, and for purchase of tendered INTERCAP revolving program bonds.
The long-term 'AA' rating on both programs incorporates the continued low leveraging of the MBOI's debt service reserve replenishment guarantee. As of March 31, 2014, the MBOI's guarantee backs $114.1 million in outstanding MFFA health care bonds issued under its master loan program and for the Montana Development Center, as well as $106.4 million in INTERCAP revolving program bonds issued by the MBOI itself.
All INTERCAP revolving program bonds of MBOI and master loan program bonds and Montana Development Center bonds of the MFFA are secured by loan repayments from individual borrowers, with bondholder security enhanced by the MBOI's irrevocable and unconditional pledge to make up any deficiency in their respective debt service reserves. Fitch's long-term 'AA' rating is based on the MBOI's obligation and its substantial resources available, totaling nearly $1.5 billion at March 31, 2014. In addition, INTERCAP revolving program bonds benefit from the MBOI's pledge to purchase tendered bonds if necessary, supporting the 'F1+' short-term rating.
MBOI's INTERCAP revolving program is primarily for Montana local governments, university and state entities, while MFFA's master loan program is primarily for health facilities. State statute limits bonds issued under the Municipal Finance Consolidation Act by MBOI to $190 million and the MFFA by policy follows the same limit of $190 million for the master loan program. Both programs continue to benefit from a sound record of loan repayments from participating entities.
Funds identified as available for borrowing in the event of reserve fund deficiency or for liquidity support consist of the Treasurer's Fund (the state's operating fund) and a portion of the Coal Severance Trust Fund (CST); as of March 31, 2014, the book value of available funds totaled $1.5 billion. The portion of the CST that is available for debt service replenishment is substantial, totaling $623 million out of $916.8 million in CST funds as of March 31, 2014 (unaudited).
The board's available funds fluctuate throughout the year and have varied over time, ranging from a low of $760.9 million in fiscal 2003 to the $1.883 billion high as of June 30, 2013, the fiscal year-end. Despite fluctuations, the available funds remain well in excess of the amount of debt enhanced by the two programs. The balance of available funds generally has paralleled the broader fiscal condition of the state over time, with solid gains in recent years linked to the state's resource sector strength.
The corpus of the CST fund cannot be invaded without approval by three-quarters of the state legislature, although Montana's legislature periodically has allocated portions of the CST assets for investment in economic development, water projects, and other targeted programs. The legislature in the past has changed the distribution of interest income from the CST, with all earnings now appropriated or dedicated by law outside the CST. For more information on the State of Montana's general credit, see Fitch's press release dated June 30, 2014, 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);
--'Rating U.S. Public Finance Short-Term Debt' (Dec. 9, 2013);
--'Rating Guidelines for State Credit Enhancement Programs' (April 18, 2013).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria
Rating U.S. Public Finance Short-Term Debt
Rating Guidelines for State Credit Enhancement Programs