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Rating Action:

Moody's assigns A2 rating to JobsOhio Beverage System's $1.5 billion of Statewide Senior Lien Liquor Profits Revenue Bonds, Series 2013A and Series 2013B

Global Credit Research - 07 Jan 2013

Developing outlook is linked to pending litigation

New York, January 07, 2013 --

Moody's Rating

Issue: Statewide Senior Lien Liquor Profits Tax-Exempt Revenue Bonds, 2013A; Rating: A2; Sale Amount: $322,230,000; Expected Sale Date: 1-23-2013; Rating Description: Revenue: Other

Issue: Statewide Senior Lien Liquor Profits Taxable Revenue Bonds, 2013B; Rating: A2; Sale Amount: $1,190,405,000; Expected Sale Date: 1-23-2013; Rating Description: Revenue: Other

OPINION

Moody's Investors Service has assigned an initial rating of A2, with a developing outlook, to the JobsOhio Beverage System's planned issuance of $1.5 billion of Statewide Senior Lien Liquor Profits Revenue Bonds, Series 2013A and Series 2013B. The bonds are secured by a first-lien pledge of net profits from the state's Liquor Enterprise. Proceeds will defease prior debt secured by the same revenue stream, while also providing a $500 million infusion for state general operating expenses and approximately $225 million for economic development programs and working capital. Interest payments on the Series 2013A bonds will not be subject to federal income taxes, and the Series 2013B bonds will be subject to federal income taxes.

SUMMARY RATING RATIONALE

The rating is based on a revenue stream that is narrow, consisting of net profits from liquor sales, yet that is also derived from a statewide base. The consumer spending behind these pledged revenues is discretionary, but a history of steady growth through recessions indicates only limited economic risk. Revenues, pledged on a net basis, are vulnerable to state Liquor Enterprise expense growth. Expected maximum annual debt service (MADS) coverage, as well as a test mandating two times MADS coverage for additional bonds and a requirement for monthly set-asides of pledged revenue, should afford a sufficient buffer against potential revenue underperformance. The rating also factors in a pending threat from unresolved litigation against the creation of the entity that will issue the debt, a 501(c)(3) called the JobsOhio Beverage System. The developing outlook indicates that near-term developments in that litigation may affect the credit rating.

STRENGTHS

--Leverage constraint requiring two times MADS coverage

--Requirement that revenues be set aside monthly in advance of principal and interest payment dates

--History of persistent growth in pledged Liquor Enterprise net profits

CHALLENGES

--Narrow nature of pledged revenue stream

--Pledged revenues' vulnerability to Liquor Enterprise expenditure growth, and to increases in state tax deducted from gross revenues

--Lack of debt-service reserve fund

OUTLOOK

The developing outlook assigned to this credit indicates that we expect the rating to be influenced near-term by developments in the pending appeal of the lower court rulings that the plaintiffs lack standing. A conclusive ruling by the state Supreme Court that ends any currently pending litigation could be expected to have a positive effect on the rating.

WHAT COULD MOVE THE RATING UP

--Resolution of pending litigation against JobsOhio

--Provision of contingency measures that shield bondholders from impact of litigation

WHAT COULD MOVE THE RATING DOWN

--Advances in legal challenges to JobsOhio, such as through a Supreme Court action that allows case to proceed

--Deterioration of net liquor profits revenues pledged to bondholders

The principal methodology used in this rating was US Public Finance Special Tax Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

Please see the credit ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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.

Edward Hampton
Vice President - Senior Analyst
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
VP - Senior Credit Officer
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 assigns A2 rating to JobsOhio Beverage System's $1.5 billion of Statewide Senior Lien Liquor Profits Revenue Bonds, Series 2013A and Series 2013B
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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