Fitch Rates Wisconsin’s $41MM Master Lease COPs ‘AA-‘; Outlook Stable

NEW YORK

Fitch Ratings has assigned an ‘AA-‘ rating to the following master lease certificates of participation (COPs) of the State of Wisconsin:

–$40.63 million master lease COPs of 2015, series A.

The COPs will be sold via negotiated sale as soon as June 23, 2015.

The Rating Outlook is Stable.

SECURITY

The master lease COPs are secured by a proportionate interest in master lease payments required to be made by the state from any source of legally available funds, subject to legislative appropriation.

KEY RATING DRIVERS

APPROPRIATION RATING LINKED TO STATE: The ‘AA-‘ rating on Wisconsin’s appropriation-backed debt, one notch below the ‘AA’ rating on the state’s general obligation (GO) bonds, reflects the state’s general credit standing and the requirement to appropriate for debt service.

BROAD, DIVERSE ECONOMY: The Wisconsin economy is broad and diverse with considerable economic resources, albeit with an above-average manufacturing presence.

FISCAL PROGRESS: The state’s finances strengthened during the fiscal 2011-13 biennium, with structural budget solutions and solid revenue gains resulting in materially stronger liquidity. However, the fiscal 2013-15 biennial budget did not further this progress as it relies on use of prior fund balance to achieve budgetary balance and prioritizes tax reductions over continued movement toward structural balance.

LIMITED RESERVES: Strong revenue performance in the last biennium allowed the state to add to reserves depleted in the last downturn. However, the commitment to expanding reserves remains uneven and automatic contributions based on revenue performance are suspended for the current biennium.

MODERATE LIABILITIES: State tax-supported debt is a moderate though above-average burden on resources. Retiree obligations are minimal, with pensions fully funded and limited other post-employment obligations.

RATING SENSITIVITIES

The rating is sensitive to changes in the State of Wisconsin’s general obligation rating, to which this rating is linked.

CREDIT PROFILE

The ‘AA-‘ rating on master lease COPs, which are paid from annual state appropriations, reflects the state’s long-term general credit characteristics and centralization of the lease issuance, budgeting, and payment processes through the Department of Administration. The department is responsible for state debt management and has a long-established history of operating the program. The cross-collateralization of all program assets under the master indenture provides further credit strength.

LINK TO GO RATING

Wisconsin’s ‘AA’ long-term GO bond rating and Stable Outlook recognize its considerable resources, a diverse economy with an above-average manufacturing presence, a moderate but above-average debt burden and fully funded pensions. Fitch also notes variability in fiscal performance with recent tax policy changes offsetting revenue gains that the growing economy would otherwise generate. The state expects to begin the next biennium with effectively a zero undesignated fund balance, leaving it with less flexibility than it had entering the current biennium.

For further information on Wisconsin’s GO rating, please see Fitch’s rating action commentary from June 10, 2015, ‘Fitch Rates $90MM Wisconsin GO Bonds ‘AA’; Outlook Stable’, available at www.fitchratings.com.

Additional information is available at ‘www.fitchratings.com‘

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from IHS Global Insight.

Applicable Criteria

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=986657

Endorsement Policy

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

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