S&P: Massachusetts School Building Authority's Series 2016B&C Sales Tax Bonds Rated 'AA+', Other Ratings Affirmed
S&P Global Ratings also affirmed its 'AA+' rating on the authority's $5.3 billion senior sales tax revenue bonds outstanding and its 'AA' rating on the authority's $293.4 million of subordinated bonds outstanding. The outlook on both the senior and subordinate series bonds is stable.
The 2016B and 2016C bonds and parity senior bonds are secured by a lien on dedicated sales tax ahead of that on the subordinated bonds. The authority's subordinate bonds are secured by a pledge of subordinated sales tax revenue.
"We view the authority's stable and sustained growth as a key credit strength," said S&P Global Ratings credit analyst John Sugden.
The ratings reflect our assessment of: A dedicated 1% sales tax that is levied statewide and is not subject to reduction or diversion pursuant to the statute and trust agreement; The pledge of sales tax revenue on a gross basis and not subject to annual legislative appropriation;The underlying strength and diversity of Massachusetts' (general obligation rating: AA+/Negative) economy, with approximately 6.7 million residents that have well above-average income levels; Long-term trends of relatively stable and sustained growth. Revenues have experienced healthy growth following a recession during fiscal years 2008-2010. We expect growth to continue at a healthy pace based on strong economic fundamentals; Good debt service coverage; andAdequate bond provisions, including a 1.4x additional bonds test for the senior bonds compared with 1.3x for the subordinate bonds. We understand that MSBA will use proceeds from the 2016B bond issue to provide funds for construction grants to cities, towns, and regional school districts. Series 2016C bond proceeds will be used to refund the series 2007A bonds for net present value savings.
The stable outlook reflects our view of the magnitude and diversity of the statewide tax base supporting the bonds. We believe debt service coverage will remain strong. Should coverage decline due to deteriorating revenues or an acceleration of debt issuance, the rating could be negatively pressured. We will not likely raise the rating in the two-year outlook horizon based on the likelihood of additional debt issuance. The commonwealth support for MSBA and the integral role it plays in stabilizing school construction costs are also factors in the rating.