Aa2 RATING AND NEGATIVE OUTLOOK ASSIGNED TO $18.6M G.O. BONDS 2012 SERIES A (FEDERALLY TAXABLE) AND $37.2M 2012 SERIES B
New York, May 17, 2012 --
Moody's Rating
Issue: General Obligation Bonds 2012 Series A (Federally Taxable);
Rating: Aa2; Sale Amount: $18,550,000;
Expected Sale Date: 5/31/12; Rating Description: General
Obligation
Issue: General Obligation Bonds 2012 Series B; Rating:
Aa2; Sale Amount: $37,225,000; Expected
Sale Date: 5/31/12; Rating Description: General Obligation
Opinion
Moody's Investors Service has revised the outlook on the State of Maine's
general obligation and lease rental debt ratings to negative from stable,
and affirmed the Aa2 rating on approximately $498 million in outstanding
general obligation debt and the Aa3 rating on the state's lease
rental bonds (approximately $188 million outstanding) issued through
the Maine Governmental Facilities Authority (MGFA). Concurrently,
Moody's has assigned a Aa2 rating to the State of Maine's
$18.55 million General Obligation Bonds 2012 Series A (Federally
Taxable) and $37.225 million 2012 Series B Bonds.
Maine plans to sell the general obligation bonds on May 31. Proceeds
will be used for statewide capital projects.
SUMMARY RATING RATIONALE
The Aa2 rating is supported by Maine's manageable debt levels;
improving revenue performance; the resolution of recent budget shortfalls
with largely recurring actions; and pension reforms that have improved
the state's funded ratios and lowered the annual required contribution
(ARC). Debt ratios are below the 50-state medians and debt
is scheduled for rapid retirement within 10 years. The state's
pension funded ratio rose from 66% (6/30/10) to 77% (6/30/11)
following reforms enacted last year and the ARC for the retirement systems
was reduced by $328 million over the 2012-2013 biennium.
Maine's revenue performance is tracking slightly over budget and
the state's unemployment rate is below that national level and gradually
declining, in line with the nation. Maine's employment
growth was essentially flat in 2011 while the national pace of job growth
was 1.1%. A weak demographic profile, including
slow population growth, an aging workforce, and out-migration
of younger residents will challenge the state over the medium term.
While the healthcare jobs have been an economic driver over the course
of the recent recession, the state's efforts to reduce spending
on social services, especially Medicaid, may reduce future
growth prospects for that sector.
The negative outlook reflects Maine's recurring challenges on the
spending side of its budget, primarily in the Department of Health
and Human Services (DHHS) which includes Medicaid; minimal budget
stabilization fund (BSF) balances and chronically negative GAAP-basis
combined available reserves, a large portion of which is related
to Medicaid reimbursements due to hospitals; and a weak General Fund
liquidity position reflecting the lack of reserves.
A rating downgrade could be triggered by: the emergence of further
significant budget gaps in the current biennium or future fiscal years;
the absence of a clearly articulated plan to achieve meaningful improvement
in the state's available reserve position in the near term;
cash-flow strain stemming from reduced liquidity; or a slower
than average economic recovery that hinders revenue growth.
The Aa3 rating on the lease rental revenue bonds reflects the security
provided by the State of Maine's absolute and unconditional pledge to
make lease rental payments, subject to annual legislative appropriation,
and the state's established track record of making payments for appropriation-backed
debt. The rating also reflects the essential nature and strong
legislative support of projects that have been funded with lease rental
bonds issued through the MGFA. The one notch distinction from the
general obligation bond rating reflects the subject-to-appropriation
nature of the lease rental bonds.
STRENGTHS:
- Gradually improving revenue performance
- Below average debt ratios (per capita and personal income) and
rapid 10-year retirement of principal (general obligation bonds)
provide flexibility to shift from pay-go to debt capital financing
- Pension funded ratio improves following reforms and recent investment
performance
- State makes ARC payment each year and often makes additional
contributions to retirement systems; ARC reduced by recent pension
reform
CHALLENGES:
- Weak GAAP-basis balance sheet reflecting negative position
of state's General Fund unassigned balance
- Modest BSF balance leaves state with limited options to resolve
unexpected shortfalls
- Liquidity remains very narrow due to lack of reserve funds
- Voter initiative activity adds a periodic element of fiscal uncertainty
- Demographic challenges may slow Maine's economic recovery
and revenue growth
Outlook
The credit outlook for Maine's long-term obligations is negative
reflecting recurring spending challenges, primarily in the Department
of Health and Human Services, which includes the state's Medicaid
budget; minimal budget stabilization fund (BSF) balances and chronically
negative GAAP-basis combined available reserves; and a weak
General Fund liquidity position reflecting the lack of reserves.
WHAT COULD MAKE THE RATING GO UP
- Achievement and maintenance of higher GAAP-basis combined
available reserve levels
- Established trend of structural budget balance
- Evidence of stronger economic performance
- Improved General Fund cash margins
- Improved and sustained pension funded ratios
WHAT COULD MAKE THE RATING GO DOWN
- Emergence of additional budget shortfalls in the current biennium
or significant future budget gaps
- Absence of a clearly articulated plan to achieve meaningful improvement
in the state's available reserve position in the near term
- Cash-flow strain stemming from reduced liquidity
- Slower than average economic recovery leading to weak employment
growth and revenue underperformance
The principal methodology used in this rating was Moody's State Rating
Methodology published in November 2004. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information,
and confidential and proprietary Moody's Analytics' information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Nicole Johnson
Senior Vice President
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Emily Raimes
Vice President - Senior Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
MOODY'S REVISES OUTLOOK ON STATE OF MAINE G.O. AND LEASE RENTAL DEBT TO NEGATIVE FROM STABLE; AFFIRMS Aa2 G.O RATING AND Aa3 LEASE RENTAL BONDS RATING; APPROXIMATELY $498M OUTSTANDING G.O. BONDS AND $188M LEASE RENTAL BONDS AFFECTED BY RATING ACTION
