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MOODY'S ASSIGNS MIG 1 TO THE PUBLIC BUILDING AUTHORITY OF SEVIER COUNTY'S (TN) $14 MILLION PUBLIC PROJECTS CONSTRUCTION NOTES (TAUD INTERIM LOAN PROGRAM), SERIES B-3

01 Apr 2011

Sevier County Public Building Authority, TN
Municipality
TN

Moody's Rating

ISSUE

RATING

Public Projects Construction Notes (TAUD Interim Loan Program), Series B-3

MIG 1

  Sale Amount

$14,000,000

  Expected Sale Date

04/11/11

  Rating Description

Short-term debt obligation

 

Opinion

NEW YORK, Apr 1, 2011 -- Moody's Investors Service has assigned a MIG 1 rating to the Public Building Authority of Sevier County, TN Public Projects Construction Notes (TAUD Interim Loan Program) Series B-3. The notes are secured by the funds pledged under the trust indenture, which include loan repayments from participating local governments under loan agreements with the Authority. Loan repayments are secured by the local governments' pledge of proceeds from permanent financing to be received from the United States Department of Agriculture, Rural Development (RD). Note proceeds will be used for new loans to local borrowers for water and sewer system and various utilities projects.

RATINGS RATIONALE

The MIG 1 rating reflects the strong liquidity for note repayment given the structure of the note program with ample margins of protection. Moody's believes the Authority will have favorable market access, due to the RD commitment for permanent financing. Additionally, Moody's believes the risk that the RD permanent financing commitment will be rescinded due to project abandonment or participant insolvency is low, due to the financial analysis and project feasibility analysis RD applies to each potential borrower prior to committing funds. The rating and this report reflect only the underlying creditworthiness of the issue.

Strengths:

-Ultimate source of note repayment provided by commitment of permanent financing from United States Department of Agriculture, Rural Development (RD)

-Essential nature of the projects and RD oversight mitigate construction risk

Challenges:

-RD commitment of permanent financing contingent on local governments' compliance with project-related conditions

DETAILED CREDIT DISCUSSION

PLEDGED FUNDS PROVIDE STRONG NOTE SECURITY

Proceeds of this note issue will provide interim financing primarily for water and sewer and various utilities construction projects of rural governmental agencies throughout the state. The notes are limited obligations of the Authority and are payable solely from funds pledged under the trust indenture. These funds primarily include loan repayments from participating local governments, which will be derived from permanent financing received from RD. Additionally, pledged funds include any unallocated note proceeds which may result if borrowers receive the proceeds for permanent financing, investment earnings on the program funds held by the trustee, and any other funds from the participating local governmental entities. The trustee is Regions Bank (rated Ba1/negative outlook). Note interest is capitalized through maturity to cover interest payment costs.

STRUCTURE OF NOTE PROGRAM ENHANCES CREDIT QUALITY

Each participant is required to have a commitment of permanent financing from RD prior to obtaining interim financing from the Authority. RD commitments are based on federal funds already allocated and are not subject to future federal budget considerations. Funds received from the RD are assigned directly to the trustee. The amount of permanent financing from RD will cover the local government's entire loan obligation. These loan repayments, as well as the capitalized interest funded by note proceeds, will provide for full debt service on the Authority's notes.

The due date on local government loans is 30 days before the final maturity on the notes (repaid by April 1, 2012 - note maturity is May 1, 2012), providing the Authority sufficient time to correct any potential cash flow shortfall - particularly by issuing refunding notes - prior to note maturity. Comfort regarding program oversight is provided by the creation of a program Compliance Group composed of the Authority, the underwriter, and the underwriter's counsel firm. The Compliance Group works with the trustee and reports on a quarterly basis on the progress of loans made to local governments, construction draws from these loan allocations, and repayments made from local governments. These factors, combined with the 30 days between the local government loan maturity date and the note maturity date, indicate that the Authority will have sufficient notification of any local government payment delays in order to deliver refunding notes in a timely fashion.

FAVORABLE MARKET ACCESS RISK FOR REFINANCING EXPECTED

Moody's believes market access for any necessary refinancing notes will be favorable given that the RD permanent financing commitment remains in place for any incomplete projects. Also, note holders are not expected to be adversely affected should the Authority be the subject of a bankruptcy filing. This has been accomplished by the full assignment of all the Authority's rights and obligations to the note Trustee.

MODEST RISK OF RD COMMITMENT RECISION

Moody's believes the risk that the RD permanent financing commitment will be rescinded due to project abandonment or participant insolvency is low, due to the financial and project feasibility analysis RD applies to each potential borrower prior to committing funds. RD reviews each potential borrower's management structure, legal authority to undertake projects and impose rates, borrower balance sheets, and the overall feasibility of the proposed project. Additionally, RD employs professional rate consultants and financial advisors to accomplish these analyses and will not commit funds until a rate structure projected to be sufficient to repay its 40-year loans has been implemented. Moody's believes the combination of these analyses, and the short time frame until Authority note maturity indicate the likelihood of severe local borrower financial stress resulting in RD's rescission of its commitment for permanent financing is low.

WHAT COULD MAKE THE RATING GO DOWN:

*Notable construction delays

*RD Rescinds commitment due to non-compliance by the borrower

The principal methodology used in this rating was Federal Gov't Support Qualifies Rural Utility System Financing Programs for Moody's Highest Short-Term Rating published in December 2008.

REGULATORY DISCLOSURES

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.

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.

Analysts

Andy Moleon
Analyst
Public Finance Group
Moody's Investors Service

Christopher Coviello
Backup Analyst
Public Finance Group
Moody's Investors Service

Julie Beglin
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS MIG 1 TO THE PUBLIC BUILDING AUTHORITY OF SEVIER COUNTY'S (TN) $14 MILLION PUBLIC PROJECTS CONSTRUCTION NOTES (TAUD INTERIM LOAN PROGRAM), SERIES B-3
No Related Data.
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