Fitch Ratings assigns an 'A-' rating to the following
lease revenue bonds of the State Public Works Board of the State of
California:
-- $80.1 million lease revenue bonds (Department of General Services) 2006 series A (San Diego Office Building Replacement);
-- $24.505 million lease revenue bonds (Trustees of California State University) 2006 series B (Academic Hall II, Building 13-San Marcos Campus);
-- $22.050 million lease revenue bonds (Department of Forestry and Fire Protection) 2006 series C (Various Forestry Projects);
-- $15.635 million lease revenue bonds (Department of Justice) 2006 series D (Various Replacement Laboratory Projects).
The bonds will be sold through negotiation on April 6 by a syndicate led by Siebert Brandford Shank & Co., LLC. Kelling, Northcross & Nobriga is the state's financial advisor for this issue.
The 'A-' ratings reflect the leased assets' essentiality, strong lease structure, and the state's long-term credit quality. Debt service on each series is paid from lease rental payments made by the specific department named. Nine of the 13 financed facilities will be complete or occupied by the bonds' closing date. One of the remaining projects is very near completion, and the other three have interest capitalized one to six months beyond the estimated occupancy date.
While the lease payments are subject to annual appropriation, each lessee is required by law to use the first funds appropriated to it from the state to make these payments along with other rental amounts supporting existing Public Works Board debt. All of the new issues are executed as supplements to the board's master indenture, which covers $5.44 billion in outstanding debt in addition to these bonds. These issues share a master debt service reserve fund, equaling $122.4 million.
Fitch affirmed the 'A' rating on California's general obligation bonds on Feb. 24. An upgrade from 'A-' in July 2004, the rating reflects California's improved economic and revenue performance and some progress in addressing its budgetary structural imbalance, which remains large. The debt burden remains in the moderate range. The underlying strength and growth of the California economy and strong revenue recovery from the steep declines experienced earlier in the decade provide the potential underpinnings for full financial recovery and credit improvement.
California's broad economy is experiencing moderate growth in all regions, including northern California, which experienced the greatest decline during the recession. Employment growth about exceeded the U.S. in 2005 at 1.8%, and the January 2006 job level is 2.2% over the same month the previous year. This compares with a 1.5% increase nationwide. Income growth also has been sound. The state's budget reasonably projects overall economic gains to slow in 2006 as well as a modest correction in housing sales and construction.
Financial improvement reflects the economic recovery and the corresponding revenue growth along with gradual reduction of a structural deficit. The general fund balance rose to $9.9 billion in fiscal 2005, on a budgetary basis, up from $3.3 billion in fiscal 2004 and a negative $7.5 billion in fiscal 2003. Major tax revenues plummeted in fiscal 2002, and spending was not similarly reduced. Rather, deficits and severe illiquidity were relieved through one-time measures, internal and external borrowing, and, ultimately, the issuance of deficit bonds. Projections for fiscal 2006 suggest a moderate operating loss, reducing the fund balance to a still good $7 billion.
The proposed fiscal 2007 budget incorporates a sizable $6.4 billion operating loss as expenditure growth outpaces revenue increases, drawing the fund balance down to $674 million. The planned loss is reduced to $4.7 billion if prepayments of loans and early payment of the deficit bonds and other obligations are excluded from the proposal.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
-- $80.1 million lease revenue bonds (Department of General Services) 2006 series A (San Diego Office Building Replacement);
-- $24.505 million lease revenue bonds (Trustees of California State University) 2006 series B (Academic Hall II, Building 13-San Marcos Campus);
-- $22.050 million lease revenue bonds (Department of Forestry and Fire Protection) 2006 series C (Various Forestry Projects);
-- $15.635 million lease revenue bonds (Department of Justice) 2006 series D (Various Replacement Laboratory Projects).
The bonds will be sold through negotiation on April 6 by a syndicate led by Siebert Brandford Shank & Co., LLC. Kelling, Northcross & Nobriga is the state's financial advisor for this issue.
The 'A-' ratings reflect the leased assets' essentiality, strong lease structure, and the state's long-term credit quality. Debt service on each series is paid from lease rental payments made by the specific department named. Nine of the 13 financed facilities will be complete or occupied by the bonds' closing date. One of the remaining projects is very near completion, and the other three have interest capitalized one to six months beyond the estimated occupancy date.
While the lease payments are subject to annual appropriation, each lessee is required by law to use the first funds appropriated to it from the state to make these payments along with other rental amounts supporting existing Public Works Board debt. All of the new issues are executed as supplements to the board's master indenture, which covers $5.44 billion in outstanding debt in addition to these bonds. These issues share a master debt service reserve fund, equaling $122.4 million.
Fitch affirmed the 'A' rating on California's general obligation bonds on Feb. 24. An upgrade from 'A-' in July 2004, the rating reflects California's improved economic and revenue performance and some progress in addressing its budgetary structural imbalance, which remains large. The debt burden remains in the moderate range. The underlying strength and growth of the California economy and strong revenue recovery from the steep declines experienced earlier in the decade provide the potential underpinnings for full financial recovery and credit improvement.
California's broad economy is experiencing moderate growth in all regions, including northern California, which experienced the greatest decline during the recession. Employment growth about exceeded the U.S. in 2005 at 1.8%, and the January 2006 job level is 2.2% over the same month the previous year. This compares with a 1.5% increase nationwide. Income growth also has been sound. The state's budget reasonably projects overall economic gains to slow in 2006 as well as a modest correction in housing sales and construction.
Financial improvement reflects the economic recovery and the corresponding revenue growth along with gradual reduction of a structural deficit. The general fund balance rose to $9.9 billion in fiscal 2005, on a budgetary basis, up from $3.3 billion in fiscal 2004 and a negative $7.5 billion in fiscal 2003. Major tax revenues plummeted in fiscal 2002, and spending was not similarly reduced. Rather, deficits and severe illiquidity were relieved through one-time measures, internal and external borrowing, and, ultimately, the issuance of deficit bonds. Projections for fiscal 2006 suggest a moderate operating loss, reducing the fund balance to a still good $7 billion.
The proposed fiscal 2007 budget incorporates a sizable $6.4 billion operating loss as expenditure growth outpaces revenue increases, drawing the fund balance down to $674 million. The planned loss is reduced to $4.7 billion if prepayments of loans and early payment of the deficit bonds and other obligations are excluded from the proposal.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.