Fitch assigns a rating of 'AA+/F1+' to the $50,000,000
State of Texas, Veterans' Housing Assistance Program, Fund II series
2006A bonds. The 'AA+' rating is based on the general obligation
rating assigned by Fitch to the State of Texas.
The 'AA+' rating on Texas GO bonds reflects the state's low debt, conservative financial operations, and an economy that has expanded and diversified. The Stable Rating Outlook reflects the state's strong economic and revenue growth and sizeable balances.
Financial pressures include demands from rapid growth placed on the state's consumption-based tax system, large transportation needs, and the court mandate for education funding to comply with a June 1 state supreme court deadline.
Economic growth has accelerated, which, along with higher energy prices, has bolstered state tax revenues and cash balances. Employment increased 2.5% in 2005 and was up 2.4% in April compared to the same month the previous year. Revenue collections are well above original estimates, and the general revenue fund cash balance, absent school funding reform, is conservatively estimated at $5.9 billion at the biennium end on Aug. 31, 2007. Debt ratios are low at 0.9% of personal income.
The legislature on May 16 passed legislation to address school funding and tax reform. The enacted legislation provides property tax relief by increasing the state's funding to in excess of 50%, of school expenses by fiscal 2008, up from 36% in fiscal 2006. Other measures include teacher pay raises. Funding centers around a broadening of the state franchise tax as well as an increase in the cigarette tax. Increased revenues are projected by the Legislative Budget Board to be substantially less than the annual increase in costs when fully phased in. Nevertheless, the large general revenue fund cash balances are sufficient to fund requirements through the current biennium.
The short-term 'F1+' rating is based on the liquidity support provided by Dexia Credit Local, acting through its New York Branch, in the form of a standby bond purchase agreement (SBPA). The SBPA provides for the payment of the purchase price of tendered bonds during the weekly rate mode in the event that remarketing proceeds are insufficient to pay the purchase price. The SBPA is sized to provide for the entire principal amount of the bonds, plus 187 days of interest at the maximum interest rate of 15% based on a year of 365 days. The SBPA will expire on Nov. 16, 2007, or upon the occurrence of other events of termination, according to its terms. Fitch's short-term rating on the bonds will expire upon any expiration or termination of the SBPA. Merrill Lynch & Co is the remarketing agent for the bonds. The bonds are expected to be available for delivery on or about May 31, 2006.
The bonds initially bear interest in the weekly rate mode and may be converted to a fixed interest rate mode. While the bonds bear interest in the weekly rate mode, interest is payable on the first business day of each June and December, commencing Dec. 1, 2006. The bonds are subject to mandatory tender upon: the first day of a fixed interest rate period; the termination, expiration, suspension, modification, or replacement of the liquidity facility; and an event of default under the liquidity facility. The bonds are also subject to optional and mandatory redemption provisions.
The proceeds of the series 2006A bonds will be used to make home loans to eligible Texas veterans.
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.
The 'AA+' rating on Texas GO bonds reflects the state's low debt, conservative financial operations, and an economy that has expanded and diversified. The Stable Rating Outlook reflects the state's strong economic and revenue growth and sizeable balances.
Financial pressures include demands from rapid growth placed on the state's consumption-based tax system, large transportation needs, and the court mandate for education funding to comply with a June 1 state supreme court deadline.
Economic growth has accelerated, which, along with higher energy prices, has bolstered state tax revenues and cash balances. Employment increased 2.5% in 2005 and was up 2.4% in April compared to the same month the previous year. Revenue collections are well above original estimates, and the general revenue fund cash balance, absent school funding reform, is conservatively estimated at $5.9 billion at the biennium end on Aug. 31, 2007. Debt ratios are low at 0.9% of personal income.
The legislature on May 16 passed legislation to address school funding and tax reform. The enacted legislation provides property tax relief by increasing the state's funding to in excess of 50%, of school expenses by fiscal 2008, up from 36% in fiscal 2006. Other measures include teacher pay raises. Funding centers around a broadening of the state franchise tax as well as an increase in the cigarette tax. Increased revenues are projected by the Legislative Budget Board to be substantially less than the annual increase in costs when fully phased in. Nevertheless, the large general revenue fund cash balances are sufficient to fund requirements through the current biennium.
The short-term 'F1+' rating is based on the liquidity support provided by Dexia Credit Local, acting through its New York Branch, in the form of a standby bond purchase agreement (SBPA). The SBPA provides for the payment of the purchase price of tendered bonds during the weekly rate mode in the event that remarketing proceeds are insufficient to pay the purchase price. The SBPA is sized to provide for the entire principal amount of the bonds, plus 187 days of interest at the maximum interest rate of 15% based on a year of 365 days. The SBPA will expire on Nov. 16, 2007, or upon the occurrence of other events of termination, according to its terms. Fitch's short-term rating on the bonds will expire upon any expiration or termination of the SBPA. Merrill Lynch & Co is the remarketing agent for the bonds. The bonds are expected to be available for delivery on or about May 31, 2006.
The bonds initially bear interest in the weekly rate mode and may be converted to a fixed interest rate mode. While the bonds bear interest in the weekly rate mode, interest is payable on the first business day of each June and December, commencing Dec. 1, 2006. The bonds are subject to mandatory tender upon: the first day of a fixed interest rate period; the termination, expiration, suspension, modification, or replacement of the liquidity facility; and an event of default under the liquidity facility. The bonds are also subject to optional and mandatory redemption provisions.
The proceeds of the series 2006A bonds will be used to make home loans to eligible Texas veterans.
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.