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Rating Action:

Moody's assigns Aa1 to $775 million Hawaii GO bonds, Series FT, FU & FV; outlook stable

23 Jan 2018

New York, January 23, 2018 -- Moody's Investors Service has assigned Aa1 ratings to the State of Hawaii's current offering of 2018 general obligation bonds to be issued in an estimated total amount of $775 million in three series: Series FT, Taxable Series FU, and Taxable Series FV. At this time we have also affirmed the Aa1 rating on the state's outstanding general obligation bonds, the Aa2 rating on its Certificates of Participation (State Office Buildings), 2009 Series A; the Aa2 rating on the Department of Hawaiian Homelands' (DHHL's) Certificates of Participation (Kapolei Office Facility), 2017 Series A; and the Aa3 rating on the DHHL's Revenue Bonds, Series 2017. The outlook on these ratings is stable.

RATINGS RATIONALE

Hawaii's Aa1 general obligation rating reflects its positive economic and revenue trends, the restoration and maintenance of sizable reserves, and proactive measures to improve the funding of its pension and OPEB liabilities. State statutes require it to ramp up its OPEB contribution to 100% of the actuarially required contribution (ARC) by fiscal 2019; the state, notably, contributed more than the statutorily-required amount in fiscal years 2014 through 2017 which will result in savings in future years. The legislature also enacted, in 2017, higher employer pension contributions in response to a significant increase in the estimated pension liability. The state's fixed costs will remain among the highest in the country at least over the medium term, which will challenge the state in the event of a downturn.

The Aa2 rating on the two series of certificates of participation reflects the limited, subject to appropriation, nature of the state's payment obligation; the essentiality of the leased assets; and the state's established track record of making appropriation-backed debt payments under similar financing agreements. The Aa3 rating on the DHHL revenue bonds reflects the satisfactory coverage of debt service by pledged revenues, the inherent volatility and lessee concentration of these real estate-derived revenues, and the availability of the state's payment through Office of Hawaiian Affairs (OHA).

RATING OUTLOOK

The stable outlook reflects the expectation that the state will maintain strong reserves while continuing to make planned progress in funding its pension and OPEB liabilities.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Increased economic diversification and reduced economic volatility.

- Sustained reduction in debt ratios and significant improvement in pension funded ratios, sooner than currently projected.

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Economic weakening leading to deteriorating revenue trends, budget imbalance, liquidity pressures, and narrowing of financial position.

- Return to reliance on non-recurring solutions to balance the budget.

- Increased debt ratios relative to other states, or deterioration of pension funded ratios.

LEGAL SECURITY

The state's general obligation bonds, including the three series of bonds that comprise the current offering, are general obligations of the state, to which the state has pledged its full faith, credit and resources. The bonds have a first charge on all general fund resources.

The COPs are secured by lease payments to be made by the state for the leased assets, subject to appropriation. The DHHL revenue bonds are secured by a first lien on the department's income derived from trust lands. In addition, OHA has contracted to make a payment of $3 million per year to the department, to be used for the payment of debt service, as long as the revenue bonds are outstanding, although the payment is not pledged.

USE OF PROCEEDS

Proceeds of the Series FT, FU and FV bonds will fund various state public improvement projects.

PROFILE

Hawaii is the 40th largest state by population, at 1.4 million. Its state gross domestic product is 38th largest. The population's income levels are above average, with per capita personal income equal to 102% of the US level and a median household income equal to 133%. Its poverty rate is in the bottom third among states.

RATING METHODOLOGY

The principal methodology used in these ratings was US States Rating Methodology published in April 2013. The additional 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 these methodologies.

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.

Kenneth Kurtz
Lead Analyst
State Ratings
Moody's Investors Service, Inc.
One Front Street
Suite 1900
San Francisco 94111
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Nicholas Samuels
Additional Contact
State Ratings
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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