Fitch Rates Oregon's GO Veterans Welfare Bonds, Series 2015P 'AA+/F1+'
KEY RATING DRIVERS
The long-term 'AA+' reflects a diverse economy with some concentration in manufacturing and agricultural products, moderate debt levels, the state's record of prompt actions to maintain financial flexibility, the maintenance of financial cushion to provide protection from revenue volatility, and well-funded pensions. Strong financial management is critical to the rating given a revenue structure largely dependent on the cyclical personal income tax (PIT), exposure to voter initiatives that can have negative fiscal impacts, and constitutional 'kicker' provisions that require the return of surplus personal income tax (PIT) revenues to taxpayers. For more information on the state of Oregon, see 'Fitch Rates Oregon's $115MM GOs 'AA+'; Outlook Stable' and 'Fitch Rates Oregon's $600MM Tax Anticipation Notes 'F1+' available on Fitch's website at www.fitchratings.com.
The short-term 'F1+' rating is based on the liquidity support provided by U.S. Bank National Association (rated 'AA/F1+', Stable Outlook) in the form of a Standby Bond Purchase Agreement (SBPA), which has a stated expiration date of May 18, 2018, unless extended or earlier terminated, during the daily, weekly and monthly interest rate modes only.
The SBPA provides for the payment of the principal component of purchase price plus an amount equal to 34 days of interest calculated at a maximum rate of 12%, based on a year of 365 days for tendered bonds during the daily, weekly and monthly rate modes in the event that the proceeds of a remarketing of the bonds are insufficient to pay the purchase price following an optional or mandatory tender. The SBPA will expire on May 18, 2018, the stated expiration date, unless such date is extended; upon conversion to any interest rate mode other than daily, weekly or monthly; or upon the occurrence of certain events of default which result in a mandatory tender or other events of default related to the credit of the bond obligor which result in an automatic and immediate termination. The remarketing agents for the bonds are U.S. Bancorp Investments, Inc. and U.S. Bank Municipal Securities Group, a division of U.S. Bank National Association. The bonds are expected to be delivered on or about Nov. 19, 2015.
The bonds will be issued in the weekly rate mode, but may be converted to a daily, monthly, quarterly, semi-annual, indexed or fixed rate. While bonds bear interest in the weekly rate mode, interest is paid on the first business day of each month, commencing Dec. 1, 2015. Holders of bonds bearing interest in the daily, weekly and monthly rate modes may tender their bonds for purchase with the requisite prior notice. The tender agent is obligated to make timely draws on the SBPA to pay purchase price in the event of insufficient remarketing proceeds, and in connection with the expiration or termination of the SBPA, except in the case of the credit-related events permitting immediate termination or suspension of the SBPA.
Funds drawn under the SBPA are held uninvested, and are free from any lien prior to that of the bondholders. The bonds are subject to mandatory tender: (1) upon conversion of the interest rate; (2) upon expiration, substitution or termination of the SBPA; and (3) following the receipt of written notice from the bank of an event of default under the SBPA, directing such mandatory tender. Optional and mandatory redemption provisions also apply to the bonds.
Bond proceeds will be used to fund the redemption price of outstanding bonds.
The short-term rating reflects the short-term rating that Fitch maintains on the bank providing liquidity support and will be adjusted upward or downward in conjunction with the short-term rating of the bank and, in some cases, the long-term rating of the bond obligor. The long-term rating is exclusively tied to the creditworthiness of the bond obligor and will reflect all changes to that rating.