CHICAGO--(BUSINESS WIRE)--Fitch Ratings upgrades the Commonwealth Transportation Board's (CTB or the board) $86.58 million of outstanding federal highway reimbursement anticipation notes (FRANs) to 'AA+' from 'AA'. The rating upgrade reflects a change in Fitch's view of the backstop security provided by the Commonwealth through the availability of funds in the transportation trust fund (TTF) or other general assembly appropriations and the rating is now explicitly linked to the Commonwealth's GO rating. The board also has $402.3 million of grant anticipation revenue notes (GARVEEs) outstanding which are subordinate to the FRANs and are not rated by Fitch. The Rating Outlook is Stable.
KEY RATING DRIVERS
COMMONWEALTH APPROPRIATION OBLIGATION: The rating is one notch below the Commonwealth of Virginia's (the Commonwealth) general obligation (GO) rating. The rating is based on access to legally available funds in the Commonwealth TTF and, ultimately, other general assembly appropriations.
TRANSPORTATION TRUST FUND OFFERS BROAD BACKSTOP: Access to the broad transportation trust fund provides backstop security, though revenue composition can be altered by the legislature.
'AAA' COMMONWEALTH GO RATING: The 'AAA' rated GO bonds reflect the Commonwealth's substantial economic resources, conservative approach to financial operations, and lower-moderate debt burden.
LIMITATION ON FUTURE LEVERAGE: The authority to issue additional FRANs expired on July 1, 2011.
RATING SENSITIVITIES
--The rating is sensitive to changes to Fitch's 'AAA' rating on the Commonwealth's GO bonds upon which this rating is based.
SECURITY
The notes are secured by federal highway reimbursements received by the commonwealth and subject to appropriation by the general assembly. Further, the notes also are secured by legally available revenues of the transportation trust fund and any other funds designated by the general assembly.
CREDIT UPDATE
The 'AA+' rating is based on ultimate access to legally available funds in the Commonwealth's transportation trust fund (TTF) and other general assembly appropriations, though appropriations for debt service are expected to be first met from federal highway reimbursements. The FRANs benefit from a Payment Agreement among the CTB, the Commonwealth's Treasury Board, and the Secretary of Finance which details the requirement of the CTB to specify to the Governor the amount of DS coming due in the next annual or biennial period and for the CTB, the Treasury Board, and the Secretary of Finance to use their best efforts to have the Governor include and the General Assembly appropriate the requested amounts. Pursuant to Virginia legislation, FRANs can no longer be issued as of July 1, 2011.
The TTF currently receives a variety of revenues representing various highway-related taxes and a portion of the state sales and use tax. Total trust fund revenues totaled $1.06 billion in fiscal year (FY) 2012 and are projected to total $1.095 billion in FY 2013. Recently enacted legislation effective for FY 2014, as it relates to the TTF, will replace the Commonwealth's per gallon tax on gas and diesel fuels primarily with various percentage-based consumption tax changes, including a sales tax on motor fuels and allocates a portion of taxes on internet sales, if authority is granted by the federal government. Preliminary estimates call for TTF revenue in FY 2014 to be $1.24 billion. Fitch notes that other CTB issues also ultimately have access to the TTF, including the capital projects revenue bonds as well as those issued for the Northern Virginia Transportation District, Route 28, Route 58, and Oak Grove Connector projects, and Fitch expects that TTF revenue would provide at least 2.5x coverage of projected MADS on outstanding and projected debt supported by the TTF.
The CTB is responsible for general policies for the construction and use of Virginia's highway system. Among its powers and duties, the board is responsible for the allocation of funds in the TTF. The Virginia Department of Transportation (VDOT) is responsible for the construction, operation and maintenance of the commonwealth's highway system in accordance with policies and procedures adopted by the board.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'Leveraging Federal Transportation Grants' (Aug. 15, 2012).
Applicable Criteria and Related Research
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033
Leveraging Federal Transportation Grants: Rating Criteria for GARVEE Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685504
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=789583
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