January 14, 2011 03:56 PM Eastern Time
Business Wire
NEW YORK--(BUSINESS WIRE)--Fitch Ratings upgrades to 'AA-' from 'A+' the underlying rating on the Oklahoma Department of Transportation's (ODOT) approximately $244.2 million outstanding grant anticipation notes (GANs). The Rating Outlook is Stable.
RATING RATIONALE:
The upgrade to 'AA-' rating reflects:
--The shorter maturity profile of ODOT's notes, with 11-year remaining maturity for outstanding notes and 12-year tenor limit for the expected issuances, exposes bondholders to a lower level of federal funding reauthorization risk. Assuming the continued practice of six-year federal transportation authorization periods, ODOT's notes are expected to span two such periods, while previous GANs issuances historically had longer debt duration that extended through three reauthorization periods.
--The pledge of all legally available federal transportation funds (net of earmarks) and the long history of federal transportation funding. Federal aid receipts in 2010 provided 14.44 times (x) maximum annual debt service (MADS) coverage.
--A 3.0x MADS additional bonds test moderates the potential for future issuance.
--ODOT's covenant that in each federal fiscal year it will request obligation of federal transportation funds for that year's note payments and the first payment for the succeeding year before obligating federal transportation funds for any other purposes.
--State taxes, while not pledged, provide additional financial support to fund debt service in the event of interruption in federal receipts.
Offsetting credit concerns include:
--Potential for significant changes in federal transportation funding policy with each authorization period that could result in reduced funding levels
necessary for highways.
--Rapid depletion of the Highway Trust Fund (HTF) due to declining fuel tax collections resulting from increased motor fuel efficiency, declining vehicle
miles traveled and rising construction costs.
--No additional structural features such as a back-up pledge of other state funds or revenues.
--Advance segregation of funds is not on a cash basis, but through a set-aside of obligation authority, resulting in a dependency on timely
administrative actions to make debt service payments.
FULL ARTICLE
Posted on
Fri, January 14, 2011
by John Cox