NEW YORK--(BUSINESS WIRE)--As part of its continuous surveillance effort Fitch Ratings takes the following action on the waste motor oil revenue bonds of the Finance Authority of Maine (FAME):
--$14.495 million series 2009A affirmed at 'A'.
The Rating Outlook is Stable.
SECURITY
Limited obligations of the authority payable solely from a portion of revenues generated by a premium on bulk and prepackaged motor oil.
KEY RATING DRIVERS
--The presence of a state moral obligation enhances the rating above what would be supported by the revenue stream and structure of the bonds on a stand-alone basis, bringing the rating to the 'A' level.
--The statutory moral obligation language is strong, requiring an appropriation to make up a deficiency in the capital (debt service) reserve. Maine general obligation (GO) bonds are rated 'AA+' with a Stable Outlook by Fitch.
--The revenues are paid by a narrow base of entities. However, the revenue stream is performing well and provides satisfactory coverage of debt service requirements.
CREDIT PROFILE
The 'A' rating reflects the security provided by the somewhat new revenue stream, generated from a premium on various motor vehicle oils, as well as the presence of a moral obligation by the state of Maine to make up deficiencies in the program's capital reserve, which serves as the debt service reserve fund. This strong state moral obligation is sufficient to raise the rating to the 'A' level whereas on a stand-alone basis, the revenue stream and structure of the bond issue would support a lower rating.
The bonds financed a portion of costs for environmental remediation at the largest of four sites used by a now defunct waste oil recycling business. Although additional borrowing had been anticipated at the time of the original issuance in 2009, recent legislative changes have shifted financing of this program to pay-as-you-go and eliminated the ability to issue additional debt related to the program.
The revenue stream that will support debt service was relatively unproven at the time of issuance and has performed well. It was instituted in 2008, replacing a previous premium on motor vehicle oil changes that did not generate sufficient revenues to support the authorized bonding program. The current premiums have been in place since Aug. 1, 2008, when the basis for the premium was changed to bulk motor oil sold or distributed in the state. A further enhancement took effect Oct. 1, 2009 when the application of the premium was expanded to include prepackaged motor oil and other lubricating oils, including transmission fluids, hydraulic fluids, etc. Revenues have performed better than anticipated with unaudited fiscal 2011 revenues nearly twice what was collected in fiscal 2009, providing 2.1 times (x) coverage of annual debt service and maximum annual debt service (MADS).
Although the revenue stream is narrow, the moral obligation of the state of Maine to replenish any draw down on the debt service reserve significantly strengthens bondholder security. Maine's 'AA+' GO rating reflects the state's low debt burden, very rapid debt amortization, and adherence to financial management policies including general fund appropriation limits and debt controls. Pursuant to its authorizing legislation, the authority may create a capital reserve fund when issuing debt, and did so with the issuance of the 2009A bonds from revenues accumulated to date. On or before Dec. 1st of each year, the authority certifies to the Governor any amounts necessary to restore the capital reserve fund to its capital reserve requirement of MADS. If there are not revenues available in the state's contingent account (rainy day fund), the Governor must transmit to the legislature the authority's certification and any amount remaining to be paid. This amount is then to be appropriated and paid to the authority during the then current fiscal year.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 15, 2011;
--'U.S. State Government Tax-Supported Rating Criteria', dated Aug. 15, 2011;
--'Rating Guidelines for Moral Obligations', May 24, 2011.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648897
Rating Guidelines for Moral Obligations
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=633029
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