As part of continuous surveillance, Fitch Ratings affirms the outstanding ratings on the following two series of general obligation (GO) refunding bonds of the Connecticut Development Authority (CDA):
--2004 series B (federally taxable) 'A';
--2004 series C (federally taxable) 'A-'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
--Security for the CDA GO bonds is provided by a gross pledge of CDA's general revenues, principally loan repayments, which are not otherwise pledged.
--Series 2004B bonds also benefit from support of the CDA's mortgage insurance fund, which insures the underlying project mortgage.
--Additional parity bonds are limited by multiple tests, including a 1.25 times (x) coverage test, although general revenues may be pledged to other bonds. No additional CDA GO bonding has been undertaken since the original issuance.
--Coverage has diminished over time due to changes in CDA loan activity and the shift to a new management contract for the XL Center, a large sports and events venue in Hartford. However, the CDA covenants to maintain sufficient loan activity to ensure coverage on the bonds.
--The rating on the bonds is not linked to the State of Connecticut's GO rating; however, the CDA benefits from state involvement, including authorized, unissued state GO bonds available to cover certain loan and guarantee program losses over and above loss allowances.
SECURITY
General obligations of the CDA, payable out of any revenues, receipts, funds or moneys of the CDA, including gross revenues and, in the case of the series 2004B bonds, proceeds of the CDA's mortgage insurance fund in the event of a foreclosure of the mortgage loan entered into in connection with the project. The pledge for these bonds excludes general revenues specifically pledged for certain other programs.
CREDIT PROFILE
The CDA's series 2004B and 2004C GO refunding bonds were issued to refund outstanding bonds associated with economic development projects in Hartford, including a performing arts amphitheatre (series 2004B) and the financing of the Hartford Whalers hockey club franchise (series 2004C). The credit quality of the bonds is not linked to the financed facilities or activities, but rather to the revenue performance of the CDA, the state's primary economic development agency. Both series carry the GO full faith and credit pledge of the CDA. In addition, the series 2004B bonds carry additional security in the form of insurance provided by the CDA's mortgage insurance fund.
GO bonds of the CDA are payable from gross revenues of the CDA currently unpledged for other purposes. Gross revenues are derived primarily from loan activity, including loan repayments, fees, premiums and interest on loans, as well as net revenues of the XL Center, a sports and entertainment venue in downtown Hartford. With the exception of one additional series of GO bonds, series 1993A (the rating of which, at 'AA-', is tied directly to the state given a special capital reserve fund available to the bonds), no other outstanding bonds have a claim on CDA general resources at present.
The CDA operates multiple direct loan and loan guarantee programs to assist private entities in the state. Loan activity is cyclical, reflecting broader economic trends, interest rates, and the availability of alternative financing sources. Direct loan and loan guarantee programs were established under state oversight, with issuance of the state's own GO bonds providing initial contributed capital. Loans outstanding, along with associated repayments, have declined significantly since initial issuance although they increased in fiscal years 2009 and 2010.
Loan performance has generally been adequate, with the CDA maintaining allowances for loan and guarantee losses. For most loan and guarantee programs, resources derived from authorized but unissued state GO bonds remain available to CDA in the event of excessive losses, although no such issuance has taken place. The ultimate availability of authorized but unissued state GO bond proceeds to cover losses is indicative of the state's involvement in and commitment to the CDA, although the CDA's GO rating is not directly linked to the rating of the state.
Financial operations of the XL Center have changed significantly since the bonds were issued. In 2007, the CDA outsourced the operation and maintenance of the facility to a private entity, reducing revenues and expenses associated with managing the facility. Although the XL Center had a history of net operating losses, more recently operations have been near breakeven on a net basis.
The CDA covenants to maintain sufficient loan activity to ensure bond repayment. Additional bonds are limited by multiple tests including a 1.25x coverage test of maximum annual debt service on a historical and projected basis, although no future issuance is currently planned.
Since initial issuance, the CDA's umbrella bond program has expired, and no other bond programs have a claim on existing CDA general revenues. The CDA manages several separate revenue bond programs and has issued various economic development-related bonds as a conduit entity, including various issues supported by the state.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 20, 2011;
--'U.S. State Government Tax-Supported Rating Criteria' (Oct. 8, 2010).
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564546
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