Fitch Ratings assigns an 'AA' rating to the following State of Hawaii highway revenue bonds:
--$118.82 million series 2011A;
--$4.735 million series 2011B.
The bonds are expected to be offered via negotiation on Nov. 30, 2011. Proceeds of the series 2011A bonds will finance state highway capital improvement projects while proceeds of the series 2011B bonds will refund certain outstanding highway revenue bonds for debt service savings.
In addition, Fitch affirms the following ratings:
--$319.85 million outstanding highway revenue bonds at 'AA'.
The Rating Outlook is Stable.
SECURITY
The bonds are special, limited obligations of the state of Hawaii, secured solely by the pledged funds which consist primarily of the fuel license (gas) tax, vehicle registration fees and weight taxes, and rental motor vehicle and tour vehicle surcharge taxes. Senior lien bonds have a first lien on the pledged funds once deposited in the State Highway Fund.
RATING RATIONALE
STRONG SECURITY: Hawaii's highway revenue bonds have a first lien upon revenues deposited into the State Highway Fund.
LIMITATION ON ADDITIONAL LEVERAGE: Additional senior lien issuance requires satisfaction of a historical 2 times (x) additional bonds test.
NATURE OF PLEDGED REVENUES: Pledged revenues are principally derived from economically sensitive fuel license (gas) taxes, vehicle registration fees and weight taxes, and rental motor vehicle and tour vehicle surcharge taxes. Vehicle registration fees and weight taxes have recently been increased by the state's legislature.
SOLID DEBT SERVICE COVERAGE: Debt service coverage levels remain solid despite significant revenue declines experienced during the recent recession. Coverage is expected to remain sound following recently adopted revenue enhancements.
RESTRICTION ON TRANSFERS: While transfers out of the highway special account are permitted under the issuance certificate after debt service obligations, operations and maintenance expenses, and required capital improvements have been funded, such transfers are only allowable provided available monies exceed 135% of the next year's revenue requirements.
CREDIT PROFILE
Highway revenue bonds are payable from and have a first lien upon revenues deposited into the State Highway Fund, principally the fuel license (gas) tax, vehicle registration fees and weight taxes, and rental motor vehicle and tour vehicle surcharge taxes, all of which become pledged user taxes upon deposit to the fund. Issuance is governed by a certificate (resolution) adopted in 1993. Subordinate lien debt is permitted under the certificate, though none has been issued nor is any contemplated.
Transfers out of the highway special account are permitted under the certificate after senior and subordinate debt service obligations, operations and maintenance expenses, and required capital improvements have been funded, provided available monies exceed 135% of the next year's revenue requirements. Previously proposed legislation to restrict such transfers has not been passed, though no transfers out of the fund are presently envisioned.
The fuel license tax provides about 45% of projected fiscal 2011 pledged revenues and was last increased to the present rate of $0.17 per gallon of gasoline and diesel oil on July 1, 2007. Rental motor vehicle and tour vehicle surcharge taxes represent the next largest sources, at 22% of fiscal 2011 revenues, and the rental vehicle surcharge of $3/day, pursuant to recently enacted legislation, no longer requires periodic extension. Additionally, in June 2011, the state passed increases affecting vehicle weight taxes and vehicle registration fees. The state expects the full impact of the increases will total $53 million annually.
Pledged revenues grew annually between 2003 and 2008, following a decline in fiscal 2002 largely associated with a decline in travel following the events of September 11. Fiscal 2009 receipts declined by a significant 11.1%, driven primarily by a 19.2% decline in rental and tour vehicle surcharge revenues attributed to declining tourist activity. Revenue performance in fiscal 2010 was also negative, declining by 2.5%, though fiscal 2011 performance rebounded somewhat with 6.6% growth projected. Following the phase in of the revenue enhancements enacted earlier this year over fiscal years 2012 and 2013, the state projects aggregate revenue growth will average 1.3% annually.
Debt service coverage remains solid and is still considerably above the covenanted 2x level required for issuance. Estimated fiscal 2011 revenues provided 5.1x coverage of maximum annual debt service (MADS) on the presently outstanding highway revenue bonds. In addition, estimated fiscal 2011 revenues provide 4.1x coverage of projected MADS on the outstanding and presently offered bonds. Fitch expects coverage to remain sound given the revenue enhancements noted earlier.
Since 1993, the state has addressed its highway capital plan with revenue bond issuance instead of general obligation (GO) debt and Fitch expects the state will continue this practice. Approximately $24.5 million of state GO bonds for highway purposes remain outstanding and reimbursable from the state's highway fund. At present, approximately $320 million of highway revenue bonds remain outstanding.
Additional information is available at 'www.fitchratings.com' . The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', dated Aug. 15, 2011;
'U.S. State Government Tax-Supported Rating Criteria', dated Aug. 15, 2011.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648897
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