APPROXIMATELY $986,505,000 OF DEBT AFFECTED
Connecticut (State of) State Revolving Fund
State Revolving Funds
State Revolving Fund General Revenue Bonds, Series 2011A
Expected Sale Date
State Revolving Fund General Revenue Bonds, 2011 Series A
NEW YORK, Mar 7, 2011 -- Moody's has assigned a highest quality Aaa rating to State of
Connecticut's $200,000,000 State Revolving Fund General Revenue Bonds, 2011
Series A, issued under the general bond resolution (GBR), dated December 17,
2002. The outlook on the bonds is stable. We are also affirming our outstanding
ratings on the State of Connecticut's SRF's outstanding debt. The rating on the
GBR is based on a program structure that provides significant
over-collateralization to the bonds, strong credit quality of the local
borrowers, loan portfolio and investments with the ability to withstand
substantial losses to revenue, and strong management and governance.
USE OF PROCEEDS: The 2011 Series A issuance will provide additional new money
for loans to borrowers, reimburse the State for amounts previously advanced to
fund loans, and pay costs of issuance.
LEGAL SECURITY: The bonds are issued under the GBR and are payable from "
available moneys" in the Revolving Fund, including loan repayments and
income or principal of any other assets or investments necessary to pay bond
INTEREST RATE DERIVATIVES: None.
*Program structure provide significant over-collateralization of assets to debt
*Strong credit quality of local borrowers
*Loan portfolio and assets able to withstand substantial losses in revenue
*Strong management and governance of State Revolving Fund Program
*Third-party exposure through funds held with Guaranteed Investment Contract
GENERAL BOND RESOLUTION PROVIDES PROGRAM FLEXIBILITY AND EFFICIENCY
The bonds are issued under Connecticut SRF's GBR and are payable from all
available moneys in the Revolving Fund, including loan repayments and income or
principal of any other assets or investments. All moneys are available for
payment for debt service, but only funds in the pledged fund, debt service fund,
bond proceeds fund, and support funds are pledged to bondholders. As a practical
matter, all monies are available to pay debt service because funds may not
be transferred out of the program under federal requirements. Furthermore, loan
repayments are deposited into the debt service fund on a monthly basis as they
are paid. The structure allows for flexibility as Connecticut SRF's assets can
be used for interest subsidies and loans made under the SRF and thus do not rely
on state appropriation for a portion of the interest subsidies. The GBR does not
require a reserve fund, which grants the state the flexibility to determine the
required reserve levels with each new series of debt through the use of a
supplemental resolution. Connecticut SRF had more than $520 million in cash and
investments as of January 31, 2011.
In addition, the drinking water programs and clean water programs are
cross-collateralized. Both the drinking water program and the clean water
program, together SRF Programs, make loans from proceeds of the bonds. Loan
repayments from the SRF Programs are deposited to the State Revolving Fund
General Revenue Bond Program and are available to pay all bonds whether loans
were made under the drinking water program or the clean water program. The
cross-collateralization has been structured in accordance with the Environmental
Protection Agency's regulations.
LOAN PORTFOLIO DEMONSTRATES VERY HIGH CREDIT QUALITY
A key element of the Aaa rating on the GBR is the high credit quality of the
loan portfolio. Each participant in the program must pledge its full faith and
credit or a dedicated revenue source as security for repayment of the loan.
Currently, 79.34% of pledged loans outstanding are backed by a General
Obligation pledge of the borrowers, while 12.37% are backed by a Revenue pledge,
and 8.29% are backed by both a General Obligation and a Revenue pledge. The GBR
program has loans commitments to 111 borrowers (representing 98 communities),
totaling $968.4 million. Moody's maintains ratings, or has evaluated the credit
quality, of 98.9% of the loan portfolio principal. The weighted average rating
for Connecticut's SRF's pool of borrowers is Aa3.
DEFAULT TOLERANCE IS HIGH
With available assets, the SRF program could withstand 36% of its loans
defaulting through the life of the bonds and still meet debt service on all
bonds. It is important to note that the program has never suffered a missed loan
repayment. In Moody's opinion, this substantial default tolerance is an
important credit strength and factors significantly in the Aaa rating.
FISCAL CONSERVATISM AND PROACTIVE MANAGEMENT ARE CREDIT STRENGTHS
A further credit strength of the program is the fiscal conservatism and careful
management practices of the parties involved. The loans are proactively
monitored through coordination with the State's Office of Policy and Management.
The program is jointly managed by the Treasurer's Office and the Departments of
Environmental Protection (DEP) and Public Health (DPH). The Treasurer's Office
is responsible for implementation and management of the fund. DEP and DPH
are responsible for preparing project priority lists and eligibility
requirements and for monitoring projects. Moody's views the coordination
and insight of these three entities as a strength to the program.
The Connecticut SRF currently holds funds in a number of GICs, including ones
which have recently experienced downgrades. The default tolerance test and cash
flow projections were run excluding revenues and principal from funds held in
GICs with AIG, which was recently downgraded to Baa1 / P-2 from A3 / P-1.
Although this may pose a long-term risk to the credit, the relatively low
amount of assets being held in downgraded GICs, substantially mitigate the risk
posed to the SRF Program.
The principal methodology used in this rating was U.S. State Revolving Fund Debt
published in July 2010.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings and public information.
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of assigning a credit rating.
The stable outlook on Connecticut's state revolving fund reflect the
underlying credit strengths of the significant collateral and strong loan
portfolio. The risks imposed by the downgraded GICs are mitigated by
management's proactive and conservative oversight of the program.
WHAT COULD CHANGE THE RATING - DOWN
Credit deterioration of third-party GIC providers could negatively impact the
rating if the SRF program is unable to withstand stressed default tolerance
scenarios. In addition, significant credit deterioration or increased
concentration of the loan pool could cause the rating to move down.
Revolving Fund Structure: Cash flow
Source of Bond Repayment: All available monies in the Revolving Fund
Default Tolerance: 36%
Number of Borrowers: 111
Portfolio Credit Quality: Very strong
Largest Borrower: Hartford County Metropolitan District (10.9% of loans
Rated Debt (includes the 2011 Series A issuance): $986,505,000
Sharon Dixon Peay, Financial Administrator (860) 702-3134
Moody's adopts all necessary measures so that the information it uses in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.
Public Finance Group
Moody's Investors Service
Rachael Royal McDonald
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S ASSIGNS Aaa RATING TO STATE OF CONNECTICUT'S STATE REVOLVING FUND GENERAL REVENUE BONDS, 2011 SERIES A
Moody's Investors Service
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New York, NY 10007