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Rating Action:

Moody's assigns A1 to West Virginia EDA's Excess Lottery Revenue Bonds Ser. 2018 A

17 Sep 2018

New York, September 17, 2018 -- Moody's Investors Service assigns an A1 rating to West Virginia Economic Development Authority's $54.3 million Excess Lottery Revenue Bonds, Series 2018 A. The outlook is stable.

RATINGS RATIONALE

The A1 rating reflects ample debt service coverage for all Excess Lottery Fund debt, despite the new leveraging with the current issuance and expectations of continued revenue declines. After years of decline, total lottery revenues are starting to rebound, but this is balanced by continued declines in net receipts flowing to bondholders. The bonds also benefit from a back-up pledge of revenues from the state lottery fund, further increasing coverage for creditors. Additional leverage is constrained by a 2.0x additional bonds test and individual annual debt service limits for lottery revenue credits.

RATING OUTLOOK

The outlook for all the state's Excess Lottery Revenue Bonds is stable, reflecting the expectation for strong coverage despite expected continued declines in net revenues. The stable outlook also reflects a significant decline in future out-of-state competition given the current legislative landscape in neighboring states.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Constitutional protection of the pledged revenues

- Trend of healthy revenue growth

- Stronger additional bonds test

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Continuing decline in revenues

- Significant dilution of debt service coverage

- Weakening of the state's economy

LEGAL SECURITY

The bonds are secured by lottery revenues that flow into the state's Excess Lottery Revenue Fund. The revenues are comprised of receipts from certain racetrack video games, table games and receipts from operations at the Greenbrier Resort, as well as limited video lottery receipts and fees. Following a change in state law in 2014, the bonds are also secured by revenues that flow into the State Lottery Fund, subordinate to first, second and third priority debt service paid out of that fund. The revenues in the State Lottery Fund are comprised of net profits from instant and on-line games, excluding the Veterans' instant lottery game, and certain racetrack video lottery game and sports wagering revenues.

The Lottery Act requires that priority of payment be given to debt service payments over other transfers out of the fund, with the exception of an annual funding of a senior citizen real estate tax credit. Since fiscal 2011 this transfer is in the amount of $10.0 million or 3.1% of 2018 Excess Lottery Revenue Fund receipts.

Debt service on the current issuance is subordinate to one outstanding series of bonds, the EDA Excess Lottery Grant Bonds, Series 2004. If funds in the Excess Lottery Revenue Fund are insufficient to satisfy all of the required transfers, funds are first set aside for the EDA's Series 2004 bonds, then to the remaining bonds secured by the Excess Lottery Revenue Fund, including the current issuance.

Coverage across all Excess Lottery Fund bonds was 5.1x in fiscal 2018; adding in net State Lottery Fund revenues, coverage increases to 7.1x. Coverage is projected to fall to a still healthy 4.6x of projected fiscal 2019 Excess Lottery revenues, but that is based on conservative revenue projections. Including State Lottery Fund revenues, coverage increases to 6.1x in 2019. Additional leverage is constrained by an annual debt service limit set by statute and a 2.0x additional bonds test.

USE OF PROCEEDS

Proceeds will be used to finance the cost of multiple state park projects across the state, including upgrades to meet Americans with Disabilities Act accessibility requirements, basic infrastructure maintenance and upgrades to cabin and lodging facilities.

PROFILE

The West Virginia Economic Development Authority is an instrumentality of the state, with a mission to advance the state's business development strategy and improve its economy. The authority issues debt to promote business development projects across the state.

The state is the obligor. West Virginia is the 38th most populous state, with an estimated 2017 population of 1.8 million residents. Its state gross domestic product is approximately $76.8 billion in 2017. The state has relatively low industrial diversity, above-average concentration in the natural resource industry and relatively low per capita income level equal to 75.3% of the US average.

METHODOLOGY

The principal methodology used in this rating was US Public Finance Special Tax Methodology published in July 2017. 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.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Timothy Blake
MANAGING DIRECTOR
Municipal Supported Products
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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