Fitch Affirms Ohio’s Adjustable Rate GO Bonds with State Liquidity at ‘F1+’
September 22, 2015 | By Business Wire News
NEW YORK
Fitch Ratings has affirmed the ‘F1+’ rating on the state of Ohio’s approximately $491.6 million adjustable rate general obligation (GO) bonds, for which the state provides liquidity upon a failed remarketing. The rating applies to the following GO bonds:
–$50 million GO infrastructure improvement adjustable rate bonds, series 2001B;
–$46.135 million GO infrastructure improvement adjustable rate bonds, series 2003B;
–$37.94 million GO infrastructure improvement adjustable rate bonds, series 2003D;
–$53.76 million GO infrastructure improvement adjustable rate bonds, series 2004A;
–$67 million GO common schools adjustable rate bonds, series 2003D;
–$112.37 million GO common schools adjustable rate bonds, series 2005 A & B;
–$124.41 million GO common schools adjustable rate bonds, series 2006 B & C.
SECURITY
General obligation, full faith and credit of the State of Ohio.
KEY RATING DRIVERS
AMPLE LIQUIDITY: The state’s Liquidity Fund has ample liquidity to meet tenders on variable rate debt that has not been remarketed. The fund is conservatively invested in U.S. agency securities, domestic commercial paper, and money market funds. The liquidity portfolio has consistently provided strong coverage of outstanding variable rate debt; the 12-month average of the portfolio provided over 10.6x coverage of debt, reflecting improved general fiscal operations.
HIGH-QUALITY GO RATING: Ohio’s ‘AA+’ GO rating is based on the state’s careful financial management, ongoing record of maintaining fiscal balance, and a moderate, rapidly amortizing debt burden, supported by an economy that is steadily, albeit slowly, adding jobs lost in the recession.
RATING SENSITIVITIES
SIGNIFICANT EROSION OF COVERAGE: A significant erosion of coverage through declines in available resources could pressure the rating. Given the very solid historical coverage, Fitch considers this unlikely.
CREDIT PROFILE
The rating reflects the ample liquidity provided by investments in the state treasurer’s liquidity account, the strength of the state’s general obligation credit, and the procedures in place to insure timely payment of optional tenders of bonds that have not been remarketed.
AMPLE LIQUIDITY
The liquidity account, consisting of high-quality securities with maturities of one year or less, was valued at $5.9 billion as of Aug. 30, 2015. Balances in the liquidity account have notably increased since fiscal year 2009 when the state spent its rainy day fund and drew down other reserves during the recession. Month-end balance in August 2015 provided 11.7x coverage of outstanding variable rate debt; over the recent 12-month period, the minimum ending monthly balance provided 9.2x coverage. When the portfolio is discounted to reflect the immediate availability of funds, coverage in August 2015 declined only modestly to 11.3x, reflecting the highly liquid nature of the portfolio. The investment profile is conservative as the fund is invested in U.S. Treasury and agency securities, highly rated commercial paper, repurchase agreements, and money market funds.
STATE CREDIT QUALITY VERY STRONG
The state’s ‘AA+’ GO rating is based on its generally careful financial management, ongoing record of maintaining fiscal balance, and a moderate, rapidly amortizing debt burden. Debt is supported by an economy that is steadily, albeit slowly, adding jobs lost in the recession. The recession had a widespread impact on the Ohio economy, accelerating a longstanding slump in manufacturing and weighing on the slowly growing service sector. However, the state has recorded consecutive months of year-over-year (y-o-y) job gains since July 2010, largely incorporating gains in the manufacturing sector as well as in the services sectors, offset by continued losses in government employment.
For additional information on the state of Ohio, please see ‘Fitch Rates State of Ohio GO Bonds ‘AA+’; Outlook Stable’ dated Sept. 1, 2015, available at ‘www.fitchratings.com‘.
Additional information is available at ‘www.fitchratings.com‘.
Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to fewer than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by Jan. 20, 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.
Applicable Criteria
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. State Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=991127
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=991127
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
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