Fitch Affirms Connecticut Dev Auth GO Rfdg 2004B Bonds at 'A'

NEW YORK--()--Fitch Ratings affirms the 'A' rating on approximately $2.7 million in outstanding general obligation (GO) refunding bonds issued by the Connecticut Development Authority (CDA), the successor agency of which is Connecticut Innovations (CI):

--2004 series B (federally taxable).

The Rating Outlook is Stable.

SECURITY:

General obligations of CI, payable out of any general revenues, receipts, funds or moneys of CI, including gross revenues and proceeds of the mortgage insurance and loan fund (insurance fund) in the event of a foreclosure of the mortgage loan entered into in connection with the project. The pledge for the bonds excludes general revenues specifically pledged for certain other programs.

KEY RATING DRIVERS

GROSS REVENUE PLEDGE: Security for CDA's series 2004B bonds is provided by a gross pledge of the general revenues of CI - the CDA's successor agency, principally loan repayments that are not otherwise pledged, which alone provide ample coverage of debt service.

COVENANT TO MAINTAIN ACTIVITY: Changes in loan activity and broader programmatic shifts in activities managed by CI have affected general revenues of the CDA and CI over time. CI covenants to maintain sufficient loan activity to ensure coverage on the bonds.

MORTGAGE INSURANCE AND LOAN FUND BACKUP: The bonds benefit from support of the mortgage insurance and loan fund, which insures the underlying project mortgage, backed by authorized state GO bonds.

STATE INVOLVEMENT: CI benefits from close involvement by the state of Connecticut (rated 'AA', Stable Outlook by Fitch), including authorized, unissued state GO bonds for the mortgage insurance and loan fund noted above.

GENERAL REVENUES SUBJECT TO OTHER PLEDGES: Additional parity bonds are limited by multiple tests, including a 1.25x coverage test, although general revenues may be pledged to other bonds. No additional issuance of GO bonds has been undertaken since the 2004 sale and none is planned.

RATING SENSITIVITIES

CHANGES IN OPERATING PERFORMANCE: The ratings are sensitive to material weakening in general revenue trends, particularly in the CI's loan activities, or future changes to CI's bond issuance that affect pledged resources.

CHANGES IN STATE INVOLVEMENT: The ratings are also sensitive to any change in the state's commitment to the CI and its programs.

CREDIT PROFILE

The CDA issued GO refunding bonds in 2004 to refund outstanding bonds associated with economic development projects in Hartford, including a performing arts amphitheater (series 2004B) and a professional sports club franchise (2004C, which have now matured). The credit quality of the bonds is not linked to the financed facilities, but rather to the overall revenue performance of the CDA and CI. The 2004B bonds also benefit from security in the form of insurance provided by the CI's mortgage insurance fund.

The state of Connecticut has a long history of supporting economic development through the CDA, CI and other state entities. The state merged the operations of CDA into CI on July 1, 2012. The merger had no direct effect on the bonds, which now benefit from the gross revenues of the merged entity.

The bonds are payable from CI's gross revenues currently unpledged for other purposes. Gross revenues are derived from multiple sources, notably loan activity, including repayments, fees, premiums and interest. With recent final maturities of other GO series with a claim on CI's general resources, only the series 2004B bonds have a claim on gross revenues.

CI operates multiple economic development activities for the state, including direct loan and loan guarantee programs to assist private entities. Loan activity is cyclical, reflecting broader economic trends, interest rates, and the availability of alternative financing sources. The direct loan and loan guarantee programs were statutorily established under state oversight, with issuance of the state's own GO bonds providing initial contributed capital.

The bonds include the issuer's covenant to maintain sufficient loan activity to ensure bond repayment. Loan activity has generally been steady in recent years, although subject to broader economic cycles, and loan performance has been adequate, with CI maintaining allowances for loan and guarantee losses for each program. Loan fees, premiums and repayments of principal and interest provided ample coverage of GO debt service in fiscal 2014, calculated by Fitch at over 2.9x debt service.

Given the final maturity of two GO series in fiscal years 2014-2015, Fitch expects coverage to rise significantly in coming years through the remaining 2004B series' fiscal 2020 final maturity. Additional bonds are limited by multiple tests including a 1.25x coverage test of outstanding maximum annual debt service (MADS) by historical revenues and 1.1x coverage of MADS following new issuance; no future issuance is currently planned.

The bonds also benefit from a backup of the CI's mortgage insurance and loan fund in the event of a foreclosure on the mortgage on the financed project. Insurance proceeds would be derived from authorized, unissued state GO bonds, currently totaling $19.5 million.

The CDA issued various economic development-related bonds as a conduit entity, including some directly supported by the state, and CI as successor entity manages several separate revenue bond programs in addition to a range of other economic development activities. With the 2012 merger, the state committed significant new funding to support CI programs, and the state's active involvement in CI continues to be a factor supporting the rating.

Other activities of the CDA, and now CI, have shifted over time, affecting gross revenues available for bond repayment though not ultimately affecting the adequacy of loan-related revenues to cover bonds. For example, the CDA formerly managed the XL Center, a sports and entertainment venue in downtown Hartford that had operated at a loss, later reducing those losses once the facility was outsourced. The CI's lease of the XL center ended in 2013.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

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=989170

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989170

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Douglas Offerman
Senior Director
+1-212-908-0889
Fitch Ratings,
33 Whitehall St
New York, NY 10004
or
Secondary Analyst
Marcy Block
Senior Director
+1-212-908-0239
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Douglas Offerman
Senior Director
+1-212-908-0889
Fitch Ratings,
33 Whitehall St
New York, NY 10004
or
Secondary Analyst
Marcy Block
Senior Director
+1-212-908-0239
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com