Fitch Rates Ohio Treasurer of State $70MM Bonds ‘AA’; Outlook Stable

NEW YORK

Fitch Ratings has assigned an ‘AA’ rating to the following state of Ohio (Treasurer of State) capital facilities lease-appropriation bonds:

–$70 million series 2015B (Adult Correctional Building Fund Projects).

The bonds are expected to be sold via negotiation the week of Nov. 2, 2015.

The Rating Outlook is Stable.

SECURITY

The bonds are special obligations of the state, payable from payments under lease agreements between the Ohio Public Facilities Commission (OPFC) and the Department of Rehabilitation and Correction (DRC). The lease agreement is subject to biennial appropriation from the state’s general revenue fund (GRF).

KEY RATING DRIVERS

APPROPRIATION MECHANISM: The rating on the bonds backed by Ohio’s lease appropriation, one notch below the state’s general obligation (GO) rating, reflects the state’s general credit standing, sound lease structure, and constitutional authorization for these types of bonds.

BROAD ECONOMY WITH LARGE MANUFACTURING SECTOR: The state’s economy is broad and diverse, although manufacturing remains a disproportionally large sector. The state’s economy is expanding but at a slower pace than immediately following the recession. The unemployment rate is under the national average.

MODERATE LIABILITY BURDEN: The state’s debt burden is moderate and rapidly amortized. Debt is typically conservatively managed and primarily consists of GOs. On a combined basis, outstanding debt and pension obligations are manageable and a well below-average burden on the state.

DEMONSTRATED ABILITY TO MANAGE BUDGET CHALLENGES: The state generally has a careful approach to financial operations and has consistently managed to achieve budgetary balance. The state’s budget stabilization fund (BSF) is fully funded.

RATING SENSITIVITIES

STATE GO CREDIT QUALITY: The rating is sensitive to changes in the state’s ‘AA+’ GO rating to which it is linked.

CREDIT PROFILE

The bonds currently offered are secured by rental payments that are appropriated biennially under a lease agreement between the OPFC and the DRC, as noted above. The debt is authorized by the state’s constitution and secured by the state’s pledge of legislative appropriation, with the lease renewable biennially until the bonds are repaid.

The treasurer of state is required to submit an estimate of the debt service requirements to each department as well as the director of budget and management prior to the start of each fiscal year. The trustee does not have the ability to take possession of or operate leased projects. The current offering will finance various capital projects for the DRC.

LINK TO GO RATING

The state’s ‘AA+’ GO rating, to which the current rating is linked, is based on its careful financial management, ongoing record of maintaining fiscal balance, and a moderate, rapidly amortizing debt burden. Debt is supported by an economy that is slowly adding jobs lost in the recession. First quarter tax revenues were marginally below estimate (-0.4%) with stronger than forecast sales and use tax receipts offsetting some underperformance in personal income and commercial activity taxes. Tax revenues increased 6.1% on a year-over-year basis, led by strong sales and use tax revenue growth.

For further information on Ohio’s GO rating, please see Fitch’s rating action commentary from Oct. 8, 2015, ‘Fitch Rates State of Ohio GO Bonds ‘AA+’; Outlook Stable’, available at www.fitchratings.com.

Date of Relevant Rating Committee: July 22, 2015.

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

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=992879

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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