Fitch Ratings assigns an 'AA-' long-term and 'F1+' short-term rating to the following bonds of the State of Montana Board of Investments (the board):
--$12 million annual adjustable-rate tender option Municipal Finance Consolidation Act bonds (INTERCAP Revolving Program), series 2010.
The bonds are expected to sell via negotiation on Feb. 22, 2010.
In addition, Fitch affirms the following ratings:
--$88.6 million in outstanding Montana Board of Investments INTERCAP revolving program bonds, affirmed at 'AA-/F1+';
--Approximately $96.3 million in outstanding Montana Facility Finance Authority (MFFA) master loan program bonds rated by Fitch, affirmed at 'AA-'.
The Rating Outlook on the long-term ratings is Stable; the short-term rating does not carry an Outlook.
RATING RATIONALE:
--The board's resources available to fulfill its pledge for bond security and liquidity are substantial, with resources significantly covering total bond principal for all board-enhanced programs. Available balances are vulnerable to fluctuations outside the board's control.
--Programs secured by the pledge have a strong repayment history, with no borrower defaults on board-backed debt to date and no draws on the debt service replenishment provision.
--Statutory and board policy limits on amounts of long- and intermediate-term debt secured by the board's pledge.
--Loans of the board and the MFFA are concentrated in a state whose economy is resource-dependent and has shown significant volatility.
KEY RATING DRIVER:
--Continued maintenance of sizable available resources and of the program's strong repayment history.
SECURITY:
Limited obligations of the board secured by loan repayments, accounts established under the indenture including the debt service reserve fund, and an irrevocable pledge of the board to lend money to the debt service reserve fund in an amount equal to any deficiency.
CREDIT SUMMARY:
The rating reflects the continued low leveraging of the board's debt service reserve replenishment guarantee on $89 million in outstanding INTERCAP program bonds, as well as the program's sound record in loan repayments. The same guarantee backs $107 million in bonds issued by the MFFA, a program which has a similarly strong lending history.
All the rated debt is initially secured by loan repayments from individual borrowers, with bondholder security enhanced by the board's irrevocable and unconditional pledge to make up any deficiency in the debt service reserve fund. Fitch's rating is based on the board's obligation and its substantial resources available, totaling more than $1.4 billion at June 30, 2009. These vast resources also enable the board to provide liquidity for any INTERCAP program bonds left unremarketed on the annual tender option date.
The debt service reserve for INTERCAP bonds is funded from bond proceeds at 7.5% of outstanding issuance. Total issuance for INTERCAP and related debt authorized under the municipal finance consolidation act is statutorily capped at $190 million, while the board by policy limits MFFA debt outstanding that benefits from the board's pledge to $190 million. INTERCAP program borrowing is primarily by Montana local governments as well as state entities, while MFFA issuance is primarily for health facilities. Debt outstanding has increased over time, but the security provided by the board's back-up pledge remains very high relative to its commitments. Funds identified as available for borrowing consist of the Treasurer's Fund (the state's operating fund) and a portion of the Coal Severance Trust Fund (CST). The Treasurer's Fund totaled $951.5 million at June 30, 2009, and the CST $795.1 million, with $490.6 million of this available for debt service reserve replenishment if needed. The board's available funds vary in amount throughout the year and have varied over time, ranging from a low of $735.3 million in fiscal 2002 to the current $1.4 billion high. Despite the fluctuation, the available funds remain well in excess of the amount of debt enhanced by the two programs. After this issuance, debt outstanding with a board pledge as security will total $204 million.
The corpus of the CST fund cannot be invaded without approval by three-quarters of the state legislature, although Montana's legislature periodically has allocated amounts of the CST assets for investment in economic development, water projects, and other targeted programs, most recently in 2006. These allocations reduced the amount of CST funds available to meet the board's obligations from a high of $544.5 million in fiscal 2000 to $409.7 million in fiscal 2002, although balances have increased gradually to the $490.6 million currently available. Also, the legislature has changed the distribution of interest income from the CST, with all earnings now appropriated or dedicated by law outside the CST.
Applicable criteria available on Fitch's web site at www.fitchratings.com include:
'Tax-Supported Rating Criteria', dated Dec. 21, 2009.
'U.S. State Government Tax-Supported Rating Criteria', dated Dec. 28, 2009.
'State Credit Enhancement Program Criteria', dated Dec. 16, 2009.
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
Douglas Offerman, +1-212-908-0889 (New York)
Amy
Doppelt, +1-415-732-5612 (San Francisco)
or
Cindy Stoller,
+1-212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com