Fitch Ratings assigns an 'AA+' rating to the following State of Nevada Highway Improvement Revenue Bonds:
--$69.47 million Highway Revenue (Motor Vehicle Fuel Tax) Refunding Bonds, series 2012
The bonds are expected to sell via competitive bid on April 24, 2011.
In addition, Fitch affirms the rating on $561.2 million outstanding highway improvement revenue bonds at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by an irrevocable pledge of gross pledged revenues, which include motor vehicle fuel taxes and federal reimbursements. The bonds are not general obligations of the state of Nevada.
KEY RATING DRIVERS
STRONG LEGAL PROVISIONS: The gross lien provides strong security; pledged revenues are constitutionally dedicated for highway purposes. The bonds are further protected by the conservative additional bonds test of 2.0 times (x) maximum annual debt service (MADS), excluding federal reimbursements.
SOLID COVERAGE BY PLEDGED COVERAGE: Although economically sensitive pledged revenues have declined, coverage of debt service from motor fuel taxes remained sound at 3.3x annual debt service in FY 2011.
REVENUE VOLATILITY MITIGATED: As with any tax based on consumption, there is exposure to reduced use due to price increases or use restrictions, as reflected in the steady trend of reduced revenue beginning in FY 2008. However, this risk is mitigated by the general stability of the motor fuel taxes, strong debt service coverage, and Nevada's pledge not to impair revenues.
CREDIT PROFILE
Strong security is provided by the gross lien on pledged revenues that are constitutionally dedicated for highway purposes. Pledged revenues include motor fuel taxes (about two-thirds from the gas tax and one-third from special fuels, with diesel the largest component of the latter) and federal reimbursements on eligible projects. The bonds are further protected by the sound additional bonds test, 2.0x maximum annual debt service (MADS), excluding federal reimbursements. Coverage of debt service from motor fuel taxes is ample.
As with any tax based on consumption, there is exposure to reduced use due to price increases, use restrictions, or, as has been the case over the past two years, economic weakness. However, these risks are mitigated by the relatively broad nature of the motor fuel tax, the prospect for a resumption of growth in the state's economy, its pledge not to impair revenues, and demonstrated sound debt service coverage. Specific pledged motor fuel taxes to repay the bonds include the state's 17.65 cents per-gallon gas tax and 27 cents per-gallon tax on special fuels, as well as federal highway funds received on eligible projects.
Motor fuel tax receipts amounted to $264.7 million in fiscal 2011, a decline of less than 1% from fiscal year (FY) 2010; however, year-to-date, fiscal 2012 revenues are down 6.4% reflecting lower consumption due both to the slow economic recovery and high gas prices. Coverage remains satisfactory despite the drop in revenues as debt service is structured with a decreasing schedule.
FY 2011 motor fuel revenue provided 3.3x coverage of maximum annual debt service (MADS). As debt service declines over the life of the bonds, coverage should increase as the economy rebounds. For all bonds, principal amortizes at just over 39% in five years, nearly 80% in 10 years, and entirely in 14 years. Federal reimbursements, a pledged revenue source, have supported large portions of debt service for prior bond programs, but conservatively are not included in the additional bonds test or coverage calculations. Coverage more than doubles when pledged federal revenues are included.
The state has been experiencing growth in population leading to increased infrastructure needs. The state Department of Transportation prepares a capital improvement program, with outstanding and new bonds part of the overall transportation plan and has issued all bonds authorized under a $1.0 billion authorization initiated in 2000. The state continues work on maximizing current revenues in addition to considering alternative approaches, such as developing a public-private partnership, for funding the state's transportation needs. The 2007 legislature provided for new sources of funding by redirecting a portion of a currently imposed property tax in counties with populations of 100,000 or more (effectively Clark and Washoe Counties), a car rental recovery surcharge, and proceeds from bonds to be issued by the Las Vegas Convention and Visitors Authority. These revenue sources are not pledged to motor vehicle fuel tax bonds.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in the report 'Tax-Supported Rating Criteria', this action was additionally informed by information from IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 15, 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
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
Sandro Scenga, +1-212-908-0278
Media Relations,
New York
sandro.scenga@fitchratings.com
or
Primary
Analyst:
Karen Krop, +1-212-908-0661
Senior Director
Fitch,
Inc.
One State Street Plaza
New York, NY 10004
or
Secondary
Analyst:
Ken Weinstein, +1-212-908-0571
Senior Director
or
Committee
Chairperson:
Marcy Block, +1-212-908-0239
Senior Director