Fitch rates Virginia's Commonwealth Transportation Board transportation revenue bonds as follows:
--$11,005,000 series 2009A-1 (Northern Virginia Transportation District Program) 'AA+';
--$61,280,000 series 2009A-2 (Northern Virginia Transportation District Program) 'AA+'.
The bonds are expected to sell competitively on Oct. 21, 2009. The series 2009A-2 bonds may be issued as Build America Bonds. Simultaneously, Fitch affirms the 'AA+' rating on outstanding commonwealth transportation board appropriation-backed transportation revenue bonds.
The rating is based on ultimate access to legally available funds in the commonwealth's transportation trust fund (TTF) and other general assembly appropriations. The commonwealth of Virginia's general obligations (GO) are rated 'AAA', with a Stable Rating Outlook.
The bonds are limited obligations of the commonwealth and its transportation board, secured by and payable from general assembly appropriations or transportation board allocations from general assembly appropriations. Appropriations for debt service are first met from specific allocations to the Northern Virginia Transportation District Fund, a separate, non-reverting fund within the TTF which receives portions of the commonwealth's recordation taxes imposed on deeds and deeds of trust attributable to the local jurisdictions in which projects are located, among other sources. Ultimately, there is access to legally available funds in the commonwealth's transportation trust fund and other general assembly appropriations.
The TTF receives a variety of revenues representing various highway-related taxes and a portion of the state sales and use tax. Trust fund revenues totaled $961 million in fiscal-year (FY) 2009 and are projected to total $922.2 million in FY 2010, with the reduction attributable to the current recession. Highway purposes are allocated 78.7% of the fund's revenues, though actual construction spending remains restrained as TTF revenues have supplemented maintenance and operation requirements. Other commonwealth transportation bonds also have access to the transportation trust fund including those issued for the Route 28, Route 58, and Oak Grove Connector projects.
The commonwealth's 'AAA' rating reflects its substantial economic resources, conservative approach to financial operations, which include periodic revenue forecast updates, and careful attention to the level of its debt obligations. While the national recession has affected state revenues, resulting in downward revisions totaling $5.6 billion over the course of the 2008-2010 biennium, Virginia has implemented balancing measures which include appropriation cuts, the replacement of pay-as-you-go capital spending with bonding, staff reductions, use of portions of federal stimulus monies for Medicaid and state fiscal stabilization, and a withdrawal of $490 million from the revenue stabilization fund in fiscal 2009. An additional withdrawal of $283 million was recently proposed, though legislative approval will be necessary. At the end of fiscal 2010, the fund is expected to hold approximately $300 million after the draw, representing 2.1% of fiscal 2010 revenues, down from $575 million at the end of fiscal 2009.
Considerations for Taxable/Build America Bonds Investors:
The following sector credit profile is provided as background for investors new to the municipal market.
State Appropriation-Backed Bonds:
A U.S. state government's overall credit quality is reflected in the rating for its general obligation (GO) full faith and credit pledge, the broadest security that a state can provide to the repayment of its long-term borrowing. In cases where bond payment requires annual or biennial legislative appropriation, this lesser long-term commitment to repayment is reflected in a lower rating than the GO rating. Such debt is typically rated one notch below the GO rating. If concerns about non-appropriation are heightened, for example in cases where there is not clear essentiality for the project being funded, such debt can be rated two or more notches below the GO rating. Conversely, if the risk of non-appropriation is judged to be effectively eliminated, for example through a mechanism that traps substantial operating funds if appropriation is not made, the appropriation debt can be rated on par with the GO credit.
State GO ratings generally fall within the two highest rating categories of 'AAA' or 'AA', with a few outliers. The top tier ratings reflect states' inherent strengths: states generally have broad economic and tax base resources and all possess sovereign powers under a federal government system, with substantial, although varying, control over revenue raising and spending. Given these inherent strengths, in only a few instances have economic concentration and long-term structural decline or the inability or unwillingness to address large financial challenges led to ratings below the 'AA' category. For additional information on State ratings, see U.S. State General Obligation Bond Rating Criteria dated April 25, 2008.
Additional information is available at www.fitchratings.com.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Contacts:
Fitch Ratings, New York
Kenneth T. Weinstein, 212-908-0571
Douglas
Offerman, 212-908-0889
or
Media Relations:
Cindy Stoller,
212-908-0526
Email: cindy.stoller@fitchratings.com
