OREANDA-NEWS. Fitch Ratings has assigned an 'AA+' rating on Indiana Finance Authority's (IFA) $464.255 million of Highway Revenue Refunding Bonds Series 2016C. All par amounts are preliminary and subject to change.

The Rating Outlook is Stable.

The bonds, which will refund certain outstanding highway revenue bonds, are expected to sell via negotiation on or about July 21.

SECURITY

The bonds are limited obligations of the IFA, paid from biennial state legislative appropriations made to the Department of Transportation (DOT) and then paid to IFA.

KEY RATING DRIVERS

The 'AAA' Long-Term Issuer Default Rating (IDR) reflects Indiana's low long-term liability burden and strong operating profile including a commitment to structural budget balance and rapid restoration of fiscal flexibility during economic expansions. Cyclical declines can be challenging, with an above-average susceptibility of state revenues to weakness during recessions.

Economic Resource Base

Despite ongoing diversification, Indiana's economy remains highly dependent on manufacturing. The state is prone to large swings in conjunction with national business cycles and is also likely to see slower overall growth than the nation. Despite the manufacturing concentration, Indiana's overall economic profile is solid, with jobs growth slightly ahead of the national trend since the Great Recession and education and health services becoming nearly as important as manufacturing.

Revenue Framework ('aa' factor assessment):

Fitch Ratings expects Indiana's revenues primarily income and sales taxes will continue to reflect the depth and breadth of the economy, but also its slower pace of growth. The state has complete legal control over its revenues.

Expenditure Framework ('aaa' factor assessment):

The state maintains ample expenditure flexibility with a low burden of carrying costs for liabilities and the broad expense-cutting ability common to most U. S. states. Also, as with most states, Medicaid remains a key expense driver but one that Fitch expects to remain manageable.

Long-Term Liability Burden ('aaa' factor assessment): Indiana's long-term liability burden is just below the median for states and is well managed. Since establishment of the Indiana Finance Authority in 2005, debt issuance and management have been centralized. The state issues debt infrequently, has been active in the public-private partnership (PPP) market, and also relies on pay-as-you-go capital funding. The burden of unfunded pensions is higher than the debt burden, but manageable. The closed Teacher's pre-1996 account utilizes a dedicated Pension Stabilization Fund to manage growth of annual contributions for the plan.

Operating Performance ('aaa' factor assessment):

Indiana remains extremely well-positioned to deal with economic downturns, with very strong gap-closing capacity in the form of ample budgetary reserves, the state's control over revenues and spending and a demonstrated willingness to take timely budgetary action. The state tends to rely on its significant expenditure control to deal with budgetary stress. As revenues recover, Indiana restores many of those cuts and focuses on reserve restoration.

RATING SENSITIVITIES

APPROPRIATION-BACKED BONDS: Ratings for Indiana's appropriation-backed debt are sensitive to changes in the state's 'AAA' IDR, to which they are linked.

CREDIT PROFILE

Highway revenue bonds issued by the IFA are payable from rental payments to be received from the Indiana Department of Transportation (INDOT) pursuant to lease agreements. The Department covenants under its lease agreements to seek legislative appropriations sufficient to make annual rental payments. If INDOT fails to request the appropriation, under the indenture the IFA must seek the legislative appropriation. The state's reliance on appropriation debt to fund its capital program and the requirement of legislative approval for projects and financings, mitigates appropriation risk. General obligation debt is constitutionally prohibited.