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Rating Action:

Moody's Assigns Aa2 to Idaho's $84M State Building Revenue Bonds, Ser. 2018A (ID State Board of Education Project); outlook stable

22 Mar 2018

New York, March 22, 2018 -- Moody's Investors Service has assigned Aa2 ratings to State of Idaho's $84M State Building Revenue Bonds, Series 2018A (Idaho State Board of Education Project) (Federally Taxable), issued by the Idaho State Building Authority. The outlook on the bonds is stable.

RATINGS RATIONALE

The rating of Aa2 is one notch below the state of Idaho's Issuer Rating (Aa1 stable), reflecting the need for annual legislative appropriation of the lease payments backing the bonds. The lease agreement, and connected sublease agreements, include strong legal provisions and an essential leased asset. In addition, the state of Idaho currently has no general obligation debt outstanding, and the Authority's capital financing program is an essential market access tool for the state.

Idaho's Aa1 credit strength is based on a growing economy that is bolstered by strong population growth, a history of conservative financial management, strong liquidity and fund balances that have improved steadily since the recession, and a very low debt burden.

RATING OUTLOOK

The stable outlook on the bonds reflects the state outlook. The state's stable outlook reflects the expectation that strong economic growth and conservative fiscal management will support structurally balanced financial performance and solid, stable reserves.

FACTORS THAT COULD LEAD TO AN UPGRADE

* Continued long term economic growth

* Maintenance of structural balance in state finances and limited reliance on non-recurring revenue sources

FACTORS THAT COULD LEAD TO A DOWNGRADE

* Significant economic slowing resulting in weaker revenue performance that severely strains state finances

* A shift away from the state's trend of well managed financial operations

LEGAL SECURITY

ANNUAL LEASE PAYMENTS SUBJECT TO LEGISLATIVE APPROPRIATION

The bonds are secured by a facilities lease agreement between the Idaho State Building Authority (the authority), as lessor, and the state, through its State Board of Education (SBOE), as lessee. The SBOE has entered into a sublease with Battelle Energy Agency (BEA), the operator of the US Department of Energy's Idaho National Laboratory, in Idaho Falls. The lease and sublease agreements include strong legal provisions and an essential leased asset.

Debt service will be paid from annual rent payments made to the authority by the SBOE, which will be funded first from sublease payments made by BEA, and ultimately by Idaho general fund revenues, subject to annual legislative appropriation. The SBOE will request the full appropriation for debt service, giving the state authority to pay the full debt service amount if there should be any interruption or abatement in rental payments from BEA.

The initial terms of the subleases with BEA terminate prior to bond maturity (in fiscal 2035 versus a fiscal 2041 final bond maturity), however the state expects that the subleases would either be renewed, or the state would continue to use the facilities for the state's higher education institutions. The triple net lease between the authority and SBOE stipulates that the state's obligation to make lease payments is absolute and unconditional, contingent only upon the appropriation of funds by the legislature, and not on whether the financed projects are in use.

Annually, the SBOE must notify the authority of its intent to renew the lease by October 1, well in advance of the June 30 fiscal year end. Once the legislature appropriates, the state has 30 days past the first day of the fiscal year to remit the annual amount for debt service. The lease payments are pledged, assigned to and deposited directly with the trustee. Debt service payment dates of September 1st and March 1st are far enough removed from the July 1 start of the state's fiscal year to limit risk of non-appropriation due to late budget adoption.

Pursuant to the lease and sublease agreements, the state will lease two new buildings to BEA to be used for the Idaho National Laboratory, located in Idaho Falls. The Cybercore Integration Center will be an 80,000 square foot building with space for labs, offices, and student training, with a research focus on cybersecurity infrastructure protection. The second building, the 67,000 square foot Collaborative Computing Center, will include Idaho National Laboratory's next supercomputer, as well as student training areas and office spaces for computer coders. Both facilities will incorporate training and education for public university students, and the state expects the buildings will add 400 jobs.

The first annual sublease payment will be due on the first day of the month after substantial completion of the buildings, and is currently estimated to be paid on October 1, 2019. To mitigate construction risk, bond interest payments will be capitalized through March 2020. BEA has the right to abate rent or terminate the sublease agreement in certain limited circumstances, however the SBOE retains the obligation to make the full lease payment from state general fund revenues, subject to appropriation. SBOE's absolute and unconditional commitment, subject only to appropriation, is the basis for the Aa2 rating.

Like most state lease bonds, there is no guarantee that debt service payments will be appropriated. In the event of state non-appropriation or non-renewal of the SBOE lease, the authority may take possession and re-let the facilities. Given the specialized nature of the facilities, it may be difficult to reconfigure and re-let the buildings. However due to the state's high reliance on this type of debt for market access, long history of continuous appropriations and renewals, and essentiality of the project to the state, we expect the incentive to appropriate will remain high.

USE OF PROCEEDS

Bond proceeds will finance construction of the leased facilities (described above).

PROFILE

Idaho is the 39th largest state, with a population of 1.68 million. It had a gross domestic product of $68.5 billion as of Q4 2016, which ranks 42nd in the US, and per capita income of $39,107.

METHODOLOGY

The principal methodology used in this rating was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2016. 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.

Baye Larsen
Lead Analyst
State Ratings
Moody's Investors Service, Inc.
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250 Greenwich Street
New York 10007
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Emily Raimes
Additional Contact
State Ratings
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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