Published: March 16, 2010
Fitch Rates Oregon DOT's $582MM Highway Subordinate Lien Revs 'AA-'; Outlook Stable
NEW YORK - (BUSINESS WIRE) - Fitch Ratings assigns an 'AA-' rating to the following State of Oregon
Department of Transportation (ODOT) highway user tax revenue bonds:
--Approximately $560.3 million subordinate lien bonds, series 2010A
(Federally Taxable Build America Bonds);
--Approximately $21.995 million subordinate lien bonds, series 2010B.
The bonds are expected to sell during the week of March 29 via
negotiation.
In addition, Fitch affirms the following ratings:
--Approximately $1.4 billion in outstanding ODOT senior lien highway
user tax revenue bonds at 'AA';
--Approximately $265.3 million in outstanding ODOT subordinate lien
highway user tax revenue bonds at 'AA-'.
The Rating Outlook is Stable.
RATING RATIONALE:
--Highway user taxes, including the gas tax, are constitutionally
dedicated for highway purposes, although pledged revenues and
apportionments thereof are subject to legislative changes and voter
initiatives.
--The state of Oregon has pledged to bondholders a first lien on
dedicated revenues, according to senior or subordinate status.
--Coverage levels, once exceptionally strong, have declined as
additional bonds were authorized. Issuance of additional senior and
subordinate bonds requires 3 times (x) and 2x coverage, respectively.
--ODOT is closely integrated in the state's central capital and
financial planning process.
KEY RATING DRIVERS:
--Significant changes in projected coverage levels;
--Significant changes to the revenue pledge or the apportionment thereof.
SECURITY:
--Senior lien bonds are secured with a parity first lien on specific
highway use taxes and fees deposited in the state highway fund, net of
administration and collection costs, and statutorily determined city and
county apportionments to fund local transportation projects.
--Subordinate lien bonds are secured by the pledged revenues on a
subordinate, junior and inferior basis to the Senior Lien bonds.
CREDIT SUMMARY:
The 'AA' rating on the senior lien bonds reflects the constitutionally
dedicated revenues for highway purposes, a strong 3x additional bonds
test (ABT), as well as the department's integration in the state's
capital and financial planning process. The 'AA-' rating on the
subordinate debt reflects the junior pledge to the senior bonds.
Further, additional subordinate bond leveraging is limited by a
satisfactory 2x ABT. Credit concerns reflect pledged revenues and
apportionments being subject to legislative changes, as well as
continued exposure to revenue restraining voter initiatives.
Providing security for the bonds are various liens on specific highway
use taxes and fees deposited in the state highway fund, net of
administration and collection costs, and statutorily determined
city/county apportionments to fund local transportation projects.
Statutory reductions for administrative costs totaled $140.3 million in
fiscal 2009. Additionally, some $125 million of collected revenues was
statutorily set aside for the Oregon Transportation Investment Act
(OTIA), totaling approximately $32.3 million for OTIA I and II and
approximately $92.8 million for OTIA III. The OTIA I and II amounts are
not credited to the state highway fund or localities for distribution
under apportionment formulas until debt service is met. Any excess not
required for debt service on OTIA bonds is distributed by formula to the
state, counties and cities.
Total highway fund revenues in fiscal 2009 were $819.3 million, of which
49% was derived from motor fuels taxes, 29% motor carrier (including
weight-mile taxes) and 22% from motor vehicles license, registration and
other fees. Fiscal 2009 highway fund revenues declined by a significant
6.9% from fiscal 2008 due to the recession. After all statutory
reductions, set asides and adjustments, fiscal 2009 pledged revenues
were 55% of total highway fund revenues, equal to $447.3 million. Fiscal
2009 pledged revenues covered senior lien annual debt service by 5.1x
and aggregate debt service by 4.6x.
Oregon's highway improvement program has expanded from the initial $500
million program begun in 2001 with OTIA I and OTIA II, constructed
through DOT and local government partnerships. In 2003, the state
expanded the breadth of this program with the $1.9 billion OTIA III
authorization for bridge improvement with the state and a private vendor
contract. The master bond declaration was modernized in 2006, providing
for issuance of subordinated debt with a 2x additional bonds test as
well as a mechanism permitting the inclusion of federal funds among
pledged revenues, although federal funds are not currently pledged for
bond repayment. The remaining $582 million of capacity under the OTIA
III program will be exhausted with the issuance of the series 2010A and
2010B bonds. Oregon's legislature has recently passed the Jobs and
Transportation Act (JTA) with $840M highway user tax revenue bond
capacity supported by increases in currently pledged revenues. Fitch
notes that an expected master declaration modification will pledge any
subsidy related to Build America Bonds (BABs) as pledged revenue for all
purposes except the calculation of the subordinate lien ABT where such
subsidy will be treated as a debt service offset. Effectively, this
exception maximizes issuance capacity on the subordinate lien.
To support additional debt authorizations, certain fees and revenues
were increased. However, coverage ratios fell from the once
extraordinary levels in excess of 70x with the initial issue in 2000 to
5x-7x after the first OTIA III issue in June 2004. Estimated debt
service coverage by projected fiscal 2014 revenues, assuming $600M of
the $840M JTA authorization is issued, excluding the BABs subsidy, would
be 4.7x for senior bonds and 3.3x for subordinate bonds. Including the
BABs subsidy as a revenue increases senior and subordinate coverage
slightly, to 4.8x and 3.4x, respectively.
Applicable criteria available on Fitch's web site at 'www.fitchratings.com':
--'Tax-Supported Rating Criteria', dated Dec. 21, 2009.
--'U.S. State Government Tax-Supported Rating Criteria', dated Dec. 28,
2009.
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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
Kenneth T. Weinstein, +1-212-908-0571 (New York)
Amy
Doppelt, +1-415-732-5612 (San Francisco)
Cindy Stoller,
+1-212-908-0526 (Media Relations, New York)
cindy.stoller@fitchratings.com
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