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Fitch Rates Maine Municipal Bond Bank's $30MM TransCap Revs 'AA-'

NEW YORK - (BUSINESS WIRE) - Fitch Ratings has assigned an 'AA-' rating to Maine Municipal Bond Bank's (the bond bank) $30 million transportation infrastructure revenue bonds (TransCap program) series 2009B. The bonds are expected to sell through negotiation the week of Aug. 24, 2009 and are due Sept. 1, 2010-2024. Early redemption provisions will be determined upon final negotiation. Fitch also affirms the 'AA-' rating on outstanding TransCap bonds. The Rating Outlook is Stable.

The 'AA-' rating reflects the security provided from satisfactory coverage by pledged revenues which are constitutionally dedicated to transportation and statutorily allocated to the TransCap fund, an adequate additional bonds test and the fifteen year amortization for program bonds. The rating also recognizes the relatively narrow pledge of motor fuel taxes, 47% of all pledged revenues, although indexing of the motor fuel taxes to the consumer price index somewhat mitigates this concern. The broader highway fund is not pledged. Pledged revenues represent about 10% of overall highway revenues. TransCap revenues to the bond bank are subject to biennial legislative allocation.

The bond bank serves as the financing agency of the State of Maine (the state) for transportation revenue bond projects. Separately secured from the bank's GARVEE bonds and from state general obligation highway bonds, the TransCap program is part of the state's bonding program supporting bridge and highway projects. The new series is the third issued under 2007 and subsequent legislation providing for a total of $240 million of TransCap bonds; $155 million has been issued to date, prior to this sale.

The bonds are paid from revenues in a separate TransCap fund created for the program and held by the bond bank. To provide monies for debt service, the legislature allocated 7.5% of fuel excise tax revenues along with revenues generated by $10 increases in motor vehicle registration, title and license plate fees to the fund. In addition, the highway fund's responsibility for public safety expenses was reduced from 60% to 49%, with the general fund assuming the added expenses. The difference between the old and new highway fund obligation (11% of public safety expenses) is pledged to the TransCap fund, providing some 15% of forecast fiscal 2010 revenues.

Highway fund revenues have been projected to decline in the near-term due to economic weakness and then rise slowly over time. Total pledged TransCap revenues are projected to total $37.2 million in fiscal 2010 rising to $44.2 million by fiscal 2025. Motor fuel receipts represent 47% of fiscal 2010 pledged TransCap revenues, with 27% from motor vehicle registration fees. The state gas tax is 29.5 cents per gallon as of July 1, 2009 and escalates annually based on the consumer price index. Motor fuel taxes are projected to decline through fiscal 2011 and then rise 2% annually. Motor vehicle registration fees, vanity plate and title fees are also projected to be flat.

The resolution provides for an ABT of 200% of maximum annual debt service (MADS), excluding the $210 million original authorization, based on 12 consecutive months out of the previous 24, a longer than average look-back period. The debt service reserve fund, equal to 50% of MADS, is funded from bond proceeds. Assuming level debt service on the new issue, coverage for the new and outstanding TransCap bonds is expected to range on an annual and ABT test basis from 2.23x in fiscal 2011 to 2.63x in fiscal 2025. Based on current revenue projections, issuance of the full authorization would exceed the 200% ABT requirement.

A memorandum of understanding (MOU) provides for the state's department of transportation to include a budget request for debt service in the biennial budget, subject to legislative allocation. The MOU also requires the state treasurer to transfer allocated revenues monthly to the bank to support debt service expenses along with capital construction. The broader highway fund is not pledged. The highway fund provides for debt service on the state's $97.3 million general obligation highway bonds. The legislation creating the TransCap fund increased allowable leverage of the highway fund, imposing a statutory highway fund debt service ratio of 10% of highway fund revenues on a three year rolling average. Prior practice was 5% of highway fund revenues. Fiscal 2008 highway fund debt service was 4% of highway fund revenues.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings, New York
Douglas Offerman, +1-212-908-0889
Michael McDermott, +1-212-908-0605
Cindy Stoller, +1-212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com