NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'AA' rating on the Massachusetts Department of Transportation (MassDOT) metropolitan highway system (MHS) revenue bonds (subordinated) commonwealth contract assistance secured.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by general obligation contract assistance payments from the Commonwealth of Massachusetts to MassDOT that are expected to fully cover all subordinate debt service payments. The commonwealth's obligation is a fixed dollar amount not directly linked to debt service.
KEY RATING DRIVERS
COMMONWEALTH DEDICATED PAYMENTS: The commonwealth's contract assistance payments are a full faith and credit obligation of the commonwealth of Massachusetts and expected to cover all subordinate debt service. As a result, the subordinated debt rating is linked to the general obligation (GO) rating of the commonwealth.
VARIABLE RATE RISK: About 70% of outstanding subordinated debt is in the form of variable rate demand obligations that have been synthetically fixed through floating-to-fixed-rate swaps. The commonwealth's support is for a set amount, not linked to actual debt device, leaving the bonds exposed to potential though unlikely risks associated with the variable rate debt.
STRONG COMMONWEALTH CREDIT QUALITY: Fitch's 'AA+' rating for the commonwealth of Massachusetts GO debt reflects considerable economic resources and a record of prudent financial management. Credit strengths are tempered by a comparatively heavy debt burden that Fitch expects to remain high. A Stable Rating Outlook reflects the expectation that the commonwealth will continue to act as needed to ensure budget balance and maintain an adequate budgeted reserve position.
RATING SENSITIVITIES
The rating is sensitive to changes in the commonwealth's GO credit standing, to which the rating is linked.
CREDIT PROFILE
The commonwealth's $100 million dedicated annual payment obligation pursuant to a 2009 contract for financial assistance with MassDOT, as successor to the Turnpike Authority, provides solid coverage of expected subordinated debt service through 2037. Increased debt service in the final two years (2038 and 2039) is covered by the $100 million payment plus an additional $25 million annual contract assistance payment from the commonwealth pursuant to a 1999 contract; that amount becomes available following final maturity of the senior MHS bonds. Both MHS liens are closed, with additional issuance prohibited with the exception of refinancings.
The only MHS subordinated bonds now outstanding are the 2010A bonds ($592 million variable rate demand obligations in seven subseries) and the 2010B bonds ($261 million fixed rate bonds). The 2010 bonds fully refunded outstanding subordinated bonds, with debt service structured so that GO contract assistance payments from the commonwealth of Massachusetts would fully cover expected debt service through final maturity in 2039. The variable-rate bonds bear interest rate at a weekly rate but MassDOT's obligations are synthetically fixed through four floating-to-fixed-rate swaps. MassDOT makes fixed interest rate payments to UBS and receives 68% of 1-month Libor.
The contract assistance payments are a general obligation pledge of the commonwealth for which its full faith and credit is pledged. For additional information on the general obligation rating of the Commonwealth of Massachusetts, see Fitch's press release 'Fitch Rates Massachusetts' $525MM GO Bonds 'AA+'; Outlook Stable', dated March 15, 2013 and available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=790195
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