Fitch Ratings assigns an 'AA' rating to the following bonds of the State of Montana Facility Finance Authority (the authority):
--$15 million health care facilities revenue bonds (master loan program - Powell County Medical Center project, Deer Lodge, Montana), series 2010A.
The bonds are expected to sell via negotiation the week of July 19.
In addition, Fitch affirms the following ratings:
--Approximately $102.9 million in outstanding authority health care facilities revenue and revenue refunding bonds (master loan program bonds), affirmed at 'AA';
--Approximately $96 million in outstanding Montana Board of Investments (the board) INTERCAP revolving program bonds, affirmed at 'AA/F1+'.
The Rating Outlook on the long-term ratings is Stable.
RATING RATIONALE:
--The rating is based on the board's irrevocable pledge to make up any deficiencies in the bonds' debt service reserve. The board's resources available to fulfill its pledge for bond security are substantial, with resources significantly exceeding 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.
--There are statutory and board policy limits on the amount of long- and intermediate-term debt that can be secured by the board's pledge.
--Loans of the authority and the board 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:
The bonds are secured by loan repayments to the authority made by Powell County Medical Center. The bonds are additionally secured by a debt service reserve fund equaling maximum annual debt service and the irrevocable and absolute pledge of the board to replenish debt service reserve fund shortfalls. The board's pledge is met from all legally available resources, which are vast and sufficiently liquid.
CREDIT SUMMARY:
The rating reflects the continued low leveraging of the board's debt service reserve replenishment guarantee as well as the authority's and the board's sound record in loan repayments. The authority previously was known as the Montana Health Facility Authority, and debt issued under that name remains outstanding. The board's guarantee backs $102.9 million in outstanding authority master loan program bonds for healthcare facilities, as well as $96 million in INTERCAP program bonds issued by the board itself.
All authority master loan program bonds, as with the board's INTERCAP program bonds, are 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 long-term 'AA' rating for both programs is based on the board's obligation and its substantial resources available, totaling $1.4 billion at June 30, 2009. In addition, INTERCAP program bonds benefit from the board's pledge to purchase tendered bonds if necessary, supporting the 'F1+' short-term rating.
The authority's master loan program is primarily for health facilities, while the board's INTERCAP program is primarily for Montana local governments and state entities. State statue limits bonds issued under the Municipal Finance Consolidation Act to $190 million and the authority follows the same limitation of $190 million. 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 in the event of reserve fund deficiency consist of the Treasurer's Fund (the state's operating fund) and a portion of the Coal Severance Trust Fund (CST). As of March 31, 2010, the book value of the Treasurer's Fund and CST together totaled $1.45 billion. The Treasurer's Fund totaled $638.4 million as of March 31, 2010, with the CST at $811.8 million. The portion of the CST that is available for debt service replenishment is substantial, totaling $490.6 million as of June 30, 2009 (audited), out of $795.1 million in CST funds. 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 $1.4 billion high as of fiscal year-end 2009. Despite fluctuations, 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 $218 million, including $3 million in other commitments.
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 available in fiscal 2009. 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. Fitch rates the State of Montana's general obligation bonds 'AA+' (see Fitch's rating action commentary dated April 21, 2010).
The series 2010A bonds are secured by loan repayments made by Powell County Medical Center, Inc. (PCMC), as the borrower, to the authority. PCMC operates a 19-bed critical access hospital, physician's clinic and nursing home in Deer Lodge, Montana. Financial operations are satisfactory, although liquidity is weak. Historical pro forma debt service coverage is 1 times based on fiscal 2009 net revenue. Proceeds of the sale will be used to construct a replacement critical access facility and physician's clinic and close an existing nursing facility, to better meet the needs of the community.
Applicable criteria available on Fitch's web site at www.fitchratings.com:
'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.
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