Fitch Rates Virginia College Bldg Auth's $207MM Educ Facil Bonds 'AA+'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned 'AA+' ratings to the following Virginia College Building Authority (VCBA) bonds:

--$53,245,000 educational facilities revenue bonds (public higher education financing program), series 2015A;

--$154,085,000 educational facilities revenue refunding bonds (public higher education financing program), series 2015B.

The bonds are expected to sell via competitive bid on Nov. 12, 2015.

The Rating Outlook is Stable.

SECURITY

The bonds are limited obligations of the authority, secured by payments due pursuant to loan agreements with participating public higher education institutional borrowers. Additional security is provided from provisions allowing the commonwealth of Virginia to intercept funds appropriated to institutional borrowers.

KEY RATING DRIVERS

AVAILABILITY TO INTERCEPT STATE APPROPRIATED FUNDS: The rating reflects provisions allowing the commonwealth of Virginia to intercept both state-appropriated funds to borrowing higher education institutions, as well as substantially all of the revenues generated locally at each, in the event of non-payment under loan agreements with the authority.

CONSERVATIVE FINANCIAL MANAGEMENT: The commonwealth's financial operations are conservatively managed with periodic revenue forecast updates and a constitutional revenue stabilization fund (RSF). The commonwealth has consistently made prompt adjustments to respond to fiscal uncertainties.

DIVERSE ECONOMY WITH HIGH WEALTH LEVELS: The commonwealth benefits from a diverse economy with relatively low unemployment and high wealth levels. As anticipated, federal government contraction weakened economic growth trends, though Fitch still views Virginia's economic profile as strong.

MODERATE LIABILITY LEVELS: Virginia's debt ratios are in the moderate range, maintained through deliberate policy and above-average amortization. Capital needs for education and transportation improvements remain significant and issuance has accelerated in recent years. While the funded status of Virginia's retirement system declined in recent years, due in part to an underfunding of actuarial contributions to the system, unfunded liabilities as a percentage of personal income remain below average for U.S. states.

RATING SENSITIVITIES

GO-LINKAGE FOR APPROPRIATION BONDS: The rating on the bonds is sensitive to changes in the commonwealth of Virginia's GO rating, to which it is linked.

STABLE CREDIT CHARACTERISTICS: The GO rating is sensitive to shifts in Virginia's fundamental credit characteristics including the commonwealth's history of timely and prudent action to address budgetary challenges.

CREDIT PROFILE

Bond proceeds will be used to acquire and to refinance certain institutional notes, issued to finance specified capital projects for public higher educational institutions participating in the issue. These bonds, as well as earlier series, are issued under a master indenture; each note is issued separately by each institution to the authority, pursuant to separate loan agreements. Under the loan agreements, the institutions pledge their general revenues to make payments on the institutional notes, which are paid directly to the trustee in amounts sufficient to pay debt service on the bonds. General revenues include virtually all of an institution's locally generated revenues not otherwise committed, including tuition and fees, as well as general and non-general fund commonwealth appropriations.

The rating on the bonds is linked to that of the commonwealth as a result of the intercept provisions, which provide that if an institution fails to make payments on its note, the state comptroller is required upon direction from the governor to make an intercept payment immediately to the owners of the institutional note. Institutional note payments are due 15 days prior to the semiannual debt service on the bonds, providing ample time for the intercept payments to be made. The intercept payments are made from any appropriation of general revenues available to a given institution, which is extremely broad, providing multiple levels of coverage at the time payments are required.

Authorization, oversight and management of appropriation-backed debt is centralized and well established in the commonwealth. The authority's financings involve the commonwealth's treasury board, which approves all bond issues payable or otherwise secured by commonwealth appropriations. Appropriation-backed debt is an important element of the commonwealth's debt structure.

Virginia's 'AAA' GO rating reflects its solid fiscal resources, conservative approach to financial operations which includes periodic revenue forecast updates, strong fundamental economic profile, and moderate liability levels. For more information on the commonwealth, see Fitch press release 'Fitch Rates Virginia Public School Auth's School Financing Bonds (1997 Resolution) Ser 2015 C 'AA+'', dated Oct. 15, 2015.

Date of Relevant Rating Committee: Oct. 15, 2015.

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

Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to fewer than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by Jan. 20, 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.

In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from CreditScope and IHS.

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993227

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
Eric Kim
Director
+1-212-908-0241
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Laura Porter
Managing Director
+1-212-908-0575
or
Committee Chairperson
Karen Krop
Senior Director
+1-212-908-0661
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Eric Kim
Director
+1-212-908-0241
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Laura Porter
Managing Director
+1-212-908-0575
or
Committee Chairperson
Karen Krop
Senior Director
+1-212-908-0661
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com