Fitch Ratings assigns an 'AAA' to the Nassau County Interim Finance Authority, NY's (NIFA) $158 million (estimate) sales tax secured refunding bonds, series 2012A (tax-exempt) and $188.6 million (estimate) sales tax secured bonds, series 2012B (taxable).
Fitch also affirms approximately $1.6 billion of NIFA sales tax secured revenue bonds at 'AAA'.
The Rating Outlook is Stable.
Pursuant to the NIFA Act (the Act), the bonds are supported by a first perfected security interest in sales tax revenues derived in Nassau County.
KEY RATING DRIVERS:
EXCEPTIONAL LEGAL PROTECTIONS: NIFA is a bankruptcy-remote, statutorily defined issuer. The tight legal framework includes a first perfected security interest in Nassau County's (the county) sales tax revenue.
STRONG COVERAGE TO CONTINUE: Debt service coverage levels are strong, and no additional debt is authorized.
ECONOMICALLY SOUND REVENUE STREAM: The tax base from which pledged revenues are drawn is strong and diverse, although inherently sensitive to economic cycles.
EXCEPTIONALLY STRONG LEGAL FRAMEWORK
The long-term 'AAA' rating incorporates elements of both municipal and structured finance credit analysis. NIFA is a bankruptcy-remote issuer, and the bond structure grants a first perfected security interest in the county's 4.25% local sales tax less the 0.25% currently required to be paid to towns and cities and the up to 0.083% authorized to be allocated to villages. The state collects sales tax revenues and distributes them to the state comptroller, who then pays the revenues directly to the bond trustee. The county receives residual revenues monthly after appropriate transfers for the payment of NIFA's debt service and operating requirements. Fitch rates the county's general obligation bonds 'A+' with a Negative Outlook.
NIFA was created by the Act as a public benefit corporation by the state of New York in June 2000 and was empowered to provide oversight for the county. The Act allowed the NIFA to issue debt for county purposes, including restructuring of outstanding county debt. Under the Act NIFA has no further debt authorization, so the only potential threats to current strong coverage are declines in county sales tax revenue and changes to the tax structure. Fitch believes the former is mitigated by the strength and diversity of the county's tax base. While pledged revenue has been somewhat variable, Fitch believes a deterioration of a magnitude that would have a meaningful impact on debt service coverage is highly unlikely. While the county and state both have the unilateral ability to alter the tax structure, Fitch believes this risk is negligible due both to the potential impact on bond security and the county's reliance on residual revenue for its operations.
SOUND DEBT STRUCTURE AND COVERAGE
Debt service coverage remains strong; coverage of maximum annual debt service (MADS) by 2011 revenue was 4.62x. Annual debt service begins to decline in 2014, so coverage is anticipated to strengthen over time. All NIFA bonds mature by 2025. Sales tax revenues were up 5.2% in 2010 and 2.2% in 2011. On a cash basis, sales tax revenues for the nine months through September 2012 are up 5.9% from the same time period in 2011.
About 39% of currently outstanding bonds are variable rate demand obligations (VRDOs), swapped to fixed rate, with diverse counterparties. NIFA's access to liquidity support is evidenced by a number of recent substitutions of expiring standby bond purchase agreements with three-year agreements.
SOUND COUNTY ECONOMIC POSITION
Nassau County, located on Long Island just east of New York City, has a broad, diverse economy and well above-average economic indicators including high income levels (medium household income in 2010 was 180% of the nation's), well below-average unemployment (6.7% in 2011), and high per capita market value ($162,000 as of 2011) despite recent tax base declines. A somewhat strained housing market is indicated by elevated foreclosure levels and stagnant average home prices.
As a fully built-out county, new development has been limited, although some redevelopment is in the planning stages. The effects of the economic downturn were milder than in some areas; employment and home price declines have been relatively moderate and sales tax revenue, the county's largest source of general government funding, has been relatively stable.
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 Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 14, 2012.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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