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Rating Action:

Moody's Assigns A2 to West Virginia Commissioner of Highway's $52.5M Special Ob Notes, Ser. 2016A ("GARVEES")

05 Dec 2016

New York, December 05, 2016 -- Issue: Surface Transportation Improvements Special Obligation Notes, Series 2016 A; Rating: A2; Rating Type: Underlying LT; Sale Amount: $52,545,000; Expected Sale Date: 12/12/2016; Rating Description: Special Tax: Transportation-Related

Summary Rating Rationale

Moody's Investors Service has assigned an A2 rating and stable outlook to West Virginia Commissioner of Highways' $52.5 million Surface Transportation Improvements Special Obligation Notes, Series 2016A (Grant Anticipation Revenue Vehicles or "GARVEES"). The transaction is expected to price the week of December 12th.

The A2 rating reflects the pledge of eligible federal highway aid received by the West Virginia Department of Transportation, which provides strong estimated debt service coverage of 8.9x MADS. The rating also reflects the recent stable pledged revenue trend and a strong additional bonds test of 3.0x. These strengths are balanced by the federal reauthorization risk of the pledged revenue stream. This risk is mitigated by the short maturity schedule that extends only two years beyond the current federal authorization period of 2020 and the state's willingness to use other funds in the event of federal revenue disruption.

Rating Outlook

The rating outlook for the notes is stable based on the reauthorization of the federal aid highway program through federal fiscal year 2020 via the Fixing America's Surface Transportation (FAST) Act, and Congress' transfer of $70 billion into the HTF. The rating and outlook already incorporate the possibility of an interruption in grants provided it does not affect debt service.

Factors that Could Lead to an Upgrade

Enhancement of the bond indenture protections against federal payment disruption risk

A return to multi-year authorizations or the addition of a sustainable dedicated revenue source for the federal HTF

Factors that Could Lead to a Downgrade

A change in federal transportation policy that reduces or interrupts highway aid

Lengthening of maturity that increases exposure to reauthorization risk

Sharp decline in underlying HTF revenues caused by economic stress, tax inefficiency or redirection of fuel taxes to general fund

Significant additional leverage that reduces coverage materially

Legal Security

The bonds are limited obligations of the state, payable solely from eligible federal highway funds received from the Federal Highway Administration, not subject to annual appropriation by the state legislature. The FHWA processes the grants out of revenues from the federal Highway Trust Fund, which is funded by federal fuel taxes and, in recent years, transfers from the federal general fund.

These securities are "direct" GARVEEs, meaning that the FHWA has agreed in a draft memorandum of understanding with the state to make payments for principal and interest costs associated with specific approved projects.

Projects to be financed will be authorized, budgeted, and obligated as advance construction debt service projects by the FHWA, and will be eligible for obligation each year in accord with the normal federal program requirements and procedures. At the beginning of each federal fiscal year (FFY), the Division will convert the amount of advance construction funds necessary to pay the debt service costs for each of the debt service projects. The conversion of the advance construction must be the first obligation in that fiscal year of funds legally available for that purpose.

The division will bill the FHWA for debt service cost seven days prior to the date the payment is due to the trustee. These funds will then be paid from the FHWA to the trustee at least four days prior to the debt service due date. The division is not obligated to use other state funds in the event that sufficient funds are not on deposit in the bond payment fund prior to the payment date, although the indenture allows for the state to make payment from other resources, being reimbursed by subsequent federal payments.

Use of Proceeds

The Series 2016A bonds will finance a new 2.6 mile access road for a business park near Danville, West Virginia in Boone County.

Obligor Profile

The West Virginia Division of Highways is a subset of the state's Department of Transportation and is responsible for nearly 36,000 miles of roadways across the state, as well as nearly 7,000 bridges. It is the sixth-largest state maintained roadway system, assuming the responsibility of roadway construction and maintenance from counties. The State of West Virginia has a population of 1.85 million people and a gross state product of approximately $70 billion. The state has relatively low industrial diversity, above-average concentration in the natural resource industry and relatively low wealth levels.

Methodology

The principal methodology used in this rating was US Public Finance Special Tax Methodology published in January 2014. Please see the Rating Methodologies 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 credit rating action on the support provider and in relation to each particular credit 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

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

Genevieve Nolan
Lead Analyst
State Ratings
Moody's Investors Service, Inc.
100 N Riverside Plaza
Suite 2220
Chicago 60606
US
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Emily Raimes
Additional Contact
State Ratings
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
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New York, NY 10007
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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