S&P: Massachusetts' 2016 Federal Highway Grant Anticipation Notes Rated 'AAA'; Other Ratings Affirmed
"We believe specific credit strengths include a strong security structure," said S&P Global Ratings credit analyst Anita Pancholy. The structure includes the state's share of Title 23 grant funds and an additional pledge under the 2010 trust agreement (TA) of excess Commonwealth Transportation Fund (CTF) revenues funded from gas taxes and vehicle-registration fees.
We believe further credit strengths include:Strong pro forma maximum annual debt service (MADS) coverage of 5.0x based on 2016 federal highway reimbursements to the commonwealth, and very strong projected coverage of nearly 15.3x incorporating excess CTF. Both figures include full issuances of the GAN and CTF credits under the Accelerated Bridge program through 2021, as well as borrowings for programs specifically funded by the CTF credit only; A requirement that debt service payments be funded with the trustee a year in advance; Sound bond provisions that prohibit additional 2010 TA GAN issuances unless the commonwealth meets an effectively 4x pro forma MADS test; and Variable-but-generally-positive trends in obligation authority and receipts of Title 23 federal aid money, a track record of maximizing federal grants, and effective management of the grant reimbursement process. In our opinion, credit weaknesses are similar to those of other grant anticipation revenue vehicle (GARVEE) notes. These include possibly lower pledged revenues from a decline in funds for states from the Highway Trust Fund (HTF) or in Congressionally appropriated amounts; changes to the federal aid highway program; and delays to congressional reauthorization or the commonwealth's failure to manage the reimbursement process.
Bond proceeds will fund a portion of the state's Accelerated Bridge Program to address the state's structurally deficient bridges.
The 2010A GANs (of which approximately $90 million are outstanding) have a final maturity of 2022. The commonwealth also has 2013A (about $230 million) and 2014A GANs ($335 million) that mature in 2027. In addition to this 2016 series, Massachusetts plans to make additional GAN issuances totaling $147.8 million with issuances in 2018 and 2020 up to the fully authorized limit.
The stable outlook reflects our expectation that Massachusetts' allocation of federal apportionments will remain consistent with historical trends over the two-year outlook period.
We could lower the rating if lower-than-expected MADS coverage occurs, either from increased additional debt needs or lower receipts.