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Fitch Affirms Minnesota's $19MM Retirement System Building Rev Bonds at 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'AAA' rating on the State of Minnesota's $18,655,000 outstanding retirement system building revenue refunding bonds, series 2012.

The Rating Outlook is Stable.

SECURITY

The bonds are special obligations of Minnesota, issued by the state through the Commissioner of Minnesota Management and Budget (MMB), payable from separate semiannual payments made from each of the retirement systems pursuant to a joint agreement under which each system further grants the commissioner a security interest in its respective system's available assets in the event of non-payment.

KEY RATING DRIVERS

--OVERWHELMING COVERAGE OF DEBT SERVICE: The 'AAA' rating reflects the enormous coverage on the small amount of debt that is provided from pension contributions as well as the magnitude of the available system assets that could be tapped if needed.

--NO ADDITIONAL DEBT PLANS: The series 2012 bonds, which refunded debt originally issued in 2000, are the only debt obligation of the systems and no additional debt is planned.

RATING SENSITIVITIES

--DEBT SERVICE COVERAGE: The rating is sensitive to the continued strong coverage of debt service.

CREDIT PROFILE

The Commissioner of the MMB issued $29 million in state of Minnesota retirement system building revenue bonds in 2000 to construct a new office building and adjoining parking facility to house the state's three major retirement systems, the Minnesota State Retirement System (MSRS), Public Employees Retirement Association (PERA), and Teachers Retirement Association (TRA).

The source of the debt service payments for the bonds is employer and employee pension contributions. Each system maintains a Pension Fund Depository Account (PFDA) in the state treasury, which receives the mandatory employee and employer contributions and investment earnings on such funds while in the account.

Each system has covenanted to maintain in their respective PFDA accounts as of May 1 and Nov. 1 each year a cash balance at least equal to the semiannual debt service requirement and agreed not to certify funds for long-term investment outside of the state treasury until it has made the semiannual debt service payment.

From its PFDA account, each system makes authorized payments for ongoing administration and operations, including semiannual payments to the commissioner for deposit in the debt service fund held in the state treasury. Semiannual payments from the systems to MMB are due by May 15 and Nov. 15, 15 days prior to the due dates on debt service. If any retirement system did not make the required debt service transfer, the commissioner, who has the power to decertify investments for deposit to the debt service fund, would make the transfer for the retirement system. Semiannual debt service payments are administrative expenses of the respective systems and funding of the retirement systems' contributions is required by state law.

The bonds are the only debt obligation of the systems, and debt service in relation to both system cash flow and available assets is miniscule. Minimum monthly revenues of each of the systems' PFDA accounts alone in fiscal 2013 covered each system's proportional share of the $2.1 million in maximum annual debt service by a minimum of 41 times. In addition, total available assets of the three systems totaled $52 billion as of June 30, 2013. Available assets exclude amounts deposited in defined contribution plans and limited other restricted plan assets.

No additional bonds are planned or authorized.

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=839818

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Contacts

Fitch Ratings
Primary Analyst
Laura Porter, +1 212-908-0575
Managing Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Marcy Block, +1 212-908-0239
Senior Director
or
Committee Chairperson
Doug Offerman, +1 212-908-0889
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com