APPROXIMATELY $17.5B OUTSTANDING G.O. DEBT AND $903M CERTIFICATES OF PARTICIPATION
New York, January 30, 2012 -- Moody's Rating
Issue: Various Purpose General Obligation Bonds, Series R-2012C;
Rating: Aa1; Sale Amount: $669,075,000;
Expected Sale Date: 01/31/2012; Rating Description: General
Obligation
Issue: Motor Vehicle Fuel Tax General Obligation Refunding Bonds,
Series R-2012D; Rating: Aa1; Sale Amount:
$260,140,000; Expected Sale Date: 01/31/2012;
Rating Description: General Obligation
Issue: Various Purpose General Obligation Bonds, Series 2012D;
Rating: Aa1; Sale Amount: $346,075,000;
Expected Sale Date: 01/31/2012; Rating Description: General
Obligation
Issue: Motor Various Purpose General Obligation Bonds, Series
2012E; Rating: Aa1; Sale Amount: $188,595,000;
Expected Sale Date: 01/31/2012; Rating Description: General
Obligation
Opinion
Moody's Investors Service has revised the outlook on the State of Washington's
general obligation bonds to negative from stable, and affirmed the
Aa1 rating on the state's general obligation bonds ($17.5
billion outstanding) and the Aa2 rating on the state's certificates
of participation ($903 million outstanding). Concurrently,
Moody's has assigned Aa1 ratings to the following sales: $346.075
million Various Purpose General Obligation Bonds, Series 2012D;
$699.075 million Various Purpose General Obligation Refunding
Bonds, Series R-2012C; $188.595 million
Motor Vehicle Fuel Tax General Obligation, Series 2012E; and
$260.14 million Motor Vehicle Fuel Tax General Obligation
Refunding bonds, Series R-2012D. The motor vehicle
fuel tax bonds are general obligations of the state, secured also
by state's excise taxes on motor vehicles. The Series R-2012C
and R-2012D are scheduled for competitive sale on January 31,
and the Series 2012D and 2012E bonds are scheduled for competitive sale
on February 28. Proceeds of the various purpose general obligation
bonds will be used to fund various statewide capital projects and the
motor vehicle fuel tax general obligation bonds will be used for transportation
related construction projects. Proceeds of the refunding bonds
will be used to refund outstanding debt for present value savings.
SUMMARY RATINGS RATIONALE
The outlook revision to negative from stable reflects the magnitude of
the revenue falloff that continues to challenge the state as it struggles
to recover from the recession; depleted reserves and GAAP-based
balances that will remain negative at least through fiscal 2012;
and high fixed costs relative to available revenues for the state's
above average debt position. Many states are reporting little or
no budget gaps for the current fiscal year as revenues improve and even
over perform in some cases. Washington, however, announced
a revenue shortfall of $1.4 billion last fall amounting
to about 5% of the biennial budget. This was after the state
closed a $4.9 billion budget gap going into the current
biennium that began on July 2, 2011. Forward-looking
economic indicators are positive and high paying aerospace and technology
jobs will eventually help Washington outperform the nation. For
now, the state's construction industry continues to have a
drag on the state's recovery reflecting a housing downturn that
hit Washington later than most states and was worse than the state expected.
Public sector employment also continues to decline as the state and local
governments downsize in response to budget challenges.
The Aa1 general obligation rating incorporates Washington's sound management
tools such as its quarterly consensus revenue forecasting process and
demonstrated willingness to address budget shortfalls, along with
strong demographic trends that will help propel the economic recovery
once it takes hold. These strengths are tempered by exposure to
the cyclical aerospace industry, above average debt ratios,
and an economy that proved more vulnerable to the housing downturn than
expected. Frequent voter initiative activity adds budget challenges
although the state legislature has a history of responding effectively
to maintain budget balance. As a state with heavy dependence on
sales tax receipts and no personal income tax, Washington's revenues
have been hit hard by the negative impact of the recession on consumer
confidence.
Credit strengths:
- Institutionalized governance practices such as consensus revenue
forecasting, multi-year revenue and expenditure projections,
and timely budget adoption.
- Strong demographic trends
- Satisfactory overall liquidity levels despite recessionary stresses
- Healthy pension funding levels and modest retiree health insurance
liability
Credit challenges:
- Economic weakness and steeper-than-forecast housing
downturn that have driven sizeable consecutive downward revenue revisions.
- Diminished financial flexibility given depletion of financial
reserves, significant use of one-time actions to balance
budgets, and implementation of large budget reductions over the
past several years
- Exposure to cyclical commercial aerospace industry.
- Debt ratios above average and likely to increase.
- Voter initiative activity adds element of fiscal uncertainty.
Outlook
Washington's rating outlook is negative reflecting the magnitude of the
revenue falloff that continues to challenge the state as it struggles
to recover from the recession; depleted reserves and GAAP-based
balances that will remain negative at least through fiscal 2012;
and high fixed costs for the state's above-average debt position.
Moody's expects that the state will address its budget gaps, as
it has in the past, although financial flexibility will remain strained
over the near term and out year structural gaps will likely be challenging
to resolve. Economic concentration in some industries that are
historically volatile poses longer-term credit risk.
WHAT COULD MAKE THE RATING GO UP
*Sustained trend of structural budget balance, plus restoration
and maintenance of strong reserve levels.
*Economic expansion and improved industry diversification.
*Reduction of debt ratios to levels closer to Moody's 50-state
medians.
WHAT COULD MAKE THE RATING GO DOWN
*Delayed or muted recovery that continues to restrain consumer confidence,
leading to further revenue weakness and budget shortfalls
*Employment erosion
*Protracted structural budget imbalance.
*Increased reliance on one-time budget solutions.
*Deterioration of the state's cash position.
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
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. 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,
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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
Kenneth Kurtz
Managing Director
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 STATE OF WASHINGTON RATING OUTLOOK TO NEGATIVE FROM STABLE AND AFFIRMS Aa1 G.O. RATING AND Aa2 CERTIFICATES OF PARTICIPATION RATING ; Aa1 RATING AND NEGATIVE OUTLOOK ASSIGNED TO UPCOMING G.O BOND SALES: VARIOUS PURPOSE G.O. SERIES 2012D
