Fitch Rates $209MM Calif. Public Works Board Bonds 'A'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has assigned an 'A' rating to the following lease revenue refunding bonds of the California State Public Works Board (SPWB):
--$209.36 million lease revenue bonds (department of corrections and rehabilitation) 2015 series H (California State Prison, Corcoran: Various Buildings).
The bonds will be sold via competitive sale on Oct. 29, 2015.
The Rating Outlook is Stable.
Lease rental payments made by state agencies to the SPWB from first lawfully available funds for use and occupancy of facilities, subject to annual state legislative appropriation.
KEY RATING DRIVERS
RATING LINKED TO STATE: The 'A' rating on lease revenue bonds, one notch below Fitch's general obligation (GO) rating on the state of California, reflects the appropriation required for debt service payment and solid program mechanics.
CALIFORNIA'S GENERAL CREDIT QUALITY: The rating incorporates the size and breadth of the state's economy and tax base, a moderate debt load, and the institutional improvements made by the state in recent years that have contributed to improved financial performance.
RATING LINKED TO STATE CREDIT QUALITY: The rating is sensitive to changes in the state's GO bond rating, to which this rating is linked.
The SPWB is California's primary means of financing state facilities, with bonds benefiting from a strong lease structure and the essential nature of leased assets. Debt service is paid from lease rental payments made pursuant to specific project leases. Lease rental payments are appropriated annually by the legislature, with the lessee agency required to use the first funds lawfully available to it for lease payments on SPWB debt. Abatement is possible, but abatement risk is mitigated by a requirement to maintain rental interruption insurance.
The current series is being issued under a separate indenture and will be incorporated under the master indenture to benefit from access to the SPWB's $162 million master indenture reserve. Prior to this sale, the master indenture reserve backs approximately $10.3 billion in outstanding SPWB lease bonds issued under the master indenture and under incorporated indentures. The incorporation of this series will not result in a reduction or withdrawal of the ratings on the incorporated bonds or on any other bonds outstanding under the master indenture.
LINK TO STATE GO RATING
The SPWB's appropriation bond rating is linked to the state's GO bond rating, at 'A+', Outlook Stable. The rating reflects the institutional improvements made by the state in recent years, its disciplined approach to achieving and maintaining structural balance in recent budgets, and the consequent fiscal progress made to date by the state as it recovers from the severe budgetary and cash flow crisis of 2008-2009. Fitch believes that these gains provide the state with a greater capacity to address future fiscal and budgetary cyclicality.
These fiscal management improvements remain untested by a severe recessionary event, but in Fitch's view the state is in a materially improved position to address future economic and revenue downturns, and its finances are likely to further strengthen assuming the current expansion and budgetary discipline continue. However, California's credit standing is likely to remain lower than that of most states given its still relatively lower flexibility related to revenue limitations, the initiative process, spending formulas for education, and other factors that remain unchanged. Key credit strengths include the state's massive, diverse economy and tax base.