NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'A+' rating on approximately $543 million of Idaho Housing and Finance Association (the association) grant and revenue anticipation bonds (GARVEEs). The Rating Outlook is Stable.
The 'A+' rating reflects the following:
--A long established track record of federal transportation funding;
--Idaho Transportation Department's (ITD) covenant to request obligation of federal surface transportation funds for debt service no more than seven days into each new federal fiscal year;
--The continuous appropriation for debt service by the state legislature of all federal surface transportation receipts;
--Additional bonds test requirement that debt service on a current and projected basis be no more than 30% of ITD's federal aid apportionments.
Offsetting credit concerns include:
--The potential for significant changes in federal policy at the end of each surface transportation funding authorization period;
--Final maturity in 2028 which exposes bondholders to a greater level of federal funding reauthorization risk than some other bonds.
Key rating drivers:
--A change in federal reauthorization funding policy to a more permanent policy of short-term authorizations rather than multi-year funding;
--A marked shift in debt structure to longer maturities.
SECURITY:
The bonds are secured by all federal payments received by the Idaho State Highway account, including but not limited to direct GARVEE debt service reimbursements to be made under a February 2006 Memorandum of Agreement between the ITD and the Federal Highway Administration (FHWA).
CREDIT SUMMARY:
The association has completed four issuances of a total planned $855 million to fund highway construction throughout Idaho, with an additional issuance of approximately $162 million expected in 2011. The state legislature authorized the initial issuance of GARVEEs in 2005. A memorandum of agreement between the Federal Highway Administration (FHWA) and the Idaho Transportation Department (ITD) and a master financing agreement among the Association, ITD and the Idaho Transportation Board (ITB) establish a payment stream equal to 90% of debt service requirements in each period. Pledged receipts are broadly defined under the indenture to include not only those federal surface transportation funds granted for the purpose of paying debt service but all other federal surface transportation fund receipts as well, meaning other federal surface transportation fund reimbursements are used to pay the remaining 10% of debt service.
Final maturity in 2028 exposes bondholders to a greater level of reauthorization risk than some other bonds of the same type. Assuming the continued practice of six-year federal transportation authorization periods, the bonds will likely span three such periods, while similar debt programs with shorter maturities generally span up to two authorization periods. Increased reauthorization risk is partly mitigated by a debt service coverage ratio on the entire planned $855 million issuance of no less than 4.5 times fiscal 2010 federal receipts of $290 million. There is no guarantee, however, that Idaho's federal transportation funding will grow or even remain stable during subsequent authorization periods. Idaho may be more susceptible than other states to changes in federal funding policy given its status as a donee state; it currently receives $1.64 in federal surface transportation funds for each $1.00 it contributes in motor fuel tax revenues.
Federal revenues become vulnerable to significant changes in federal policy at the end of each funding authorization period. The federal highway trust fund continues to operate but is dependent on general fund transfers. In March 2010, the highway account of the trust fund received a $19.5 billion general fund transfer under the HIRE Act - of which $4.8 billion was earmarked for the Mass Transit Account (MTA) - following a $7 billion general fund transfer in August 2009 and an $8 billion transfer in September 2008. Most recently in December 2010, Congress approved an extension of SAFETEA-LU through March 4, 2011, making this the sixth extension since the original authorization expired on Sept. 30, 2009. While interruption in the flow of federal highway funding is highly unlikely given the broad-based political support for the surface transportation program, multi-year reauthorizations of transportation legislations have often been delayed and replaced with shorter-term authorizations.
The Connecting Idaho Program is a critical element of the state's transportation investment strategy and involves new highway links, roadway reconstruction and other improvements throughout the state. The original program called for $1.1 billion in issuance to fund improvements along 13 corridors; the current version of the plan calls for $878 million for improvements along six corridors.
Idaho Housing and Finance Association, which is authorized by state statute to issue the bonds, is a body politic and corporate created to assure an adequate source of capital for affordable housing and has the power to finance various facilities for nonprofit corporations. ITD is responsible for building, preserving and operating the state transportation system. The ITB is vested with the authority to control, supervise and administer ITD. Under the master financing agreement each subsequent issuance of debt must be authorized by the legislature, creating flexibility to expand or contract the size of the program.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--Rating Criteria for Infrastructure and Project Finance (Aug. 13, 2010)
--Rating Guidelines for Leveraging Federal Transportation Funds (March 22, 2007)
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345
Rating Guidelines for Leveraging Federal Transportation Funds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=319388
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