S&P: Massachusetts Series 2016A Commonwealth Transportation Fund Revenue And Revenue Refunding Bonds Rated 'AAA'
At the same time, S&P Global Ratings has affirmed its 'AAA' rating, with a stable outlook, on its CTF parity revenue bonds outstanding, and its closed prior-lien special obligation gas tax bonds.
The CTF bonds are secured by pledged revenues that include motor fuel/gasoline taxes and motor vehicle registration fees levied statewide. The special obligation gas tax bonds are secured by a first lien on 6.86 cents of the state-levied gas tax.
We base the ratings on what we view as the following credit strengths:A strong and diversified revenue mix that is collected statewide (population of 6.8 million) and has been relatively stable through economic cycles;The commonwealth's strong economic fundamentals, with a diverse economy and high income levels;Very strong 7.4x coverage of future maximum annual debt service; andVery strong bond covenants. In our view, the lack of a debt service reserve is offset largely the high coverage of debt service.
We understand that series 2016A revenue bond proceeds will be used to fund portions of seven major accelerated bridge program projects. Bond proceeds will also be used to fund the commonwealth's rail enhancement program, outside the Massachusetts Bay Transportation Authority's regular capital program. In our view, the new rail program represents a significant expansion of CTF bonding plans, although this is mitigated by expected continued high debt service coverage.
Bond proceeds from the 2016A revenue refunding bond will be used to advance-refund parity debt for net present value savings. There are savings throughout the remaining life of the bonds and there is no extension of maturities.
"The stable outlook reflects what we view as the strong credit structure supporting the bonds, which insulates bondholders from future volatility or deterioration of pledged revenues," said S&P Global Ratings credit analyst John Sugden.
One long-term risk is that the rail enhancement program could require substantial new capital funding beyond current authorizations. However, we feel that the currently very strong debt service coverage and very strong additional bonds test should provide strong protection against future debt dilution. Over our two-year outlook time horizon, we do not see the potential for lowering the rating as we expect coverage levels to remain very strong, despite planned additional debt issuance. Furthermore, we believe that Massachusetts' substantial and diverse economy will continue to support stability in pledged revenues over time.