New York, November 12, 2020 -- Moody's Investors Service has assigned a Aa1 rating to the Massachusetts Development Finance Agency's $33.8 million Special Obligation Refunding Bonds (Commonwealth Contract Assistance), Series 2020A-1 (Federally Taxable), $9 million Series 2020A-2 (Federally Taxable) and $8.8 million Series 2020A-3 (Federally Taxable). The par amount is preliminary and subject to change. The outlook is stable.
RATINGS RATIONALE
The Aa1 rating reflects Massachusetts' full faith and credit pledge to make annual contract assistance for state infrastructure development assistance in amounts equal to debt service.
Massachusetts' Aa1 rating reflects the commonwealth's robust economic base in good times and its strong management practices to help navigate challenging times. The commonwealth retains strong social factors, such as a highly educated workforce and high income levels, that draw employers and help the commonwealth afford its elevated long-term liability burden. Reliance on economically sensitive revenues is balanced by healthy reserves and the ability to access alternate sources of liquidity. Massachusetts' strong governance framework is reflected in its sound financial and budgetary management practices, which will remain key credit factors as the state navigates future uncertainty.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The coronavirus crisis is not a key driver for this rating action. We do not see any material immediate credit risks for Massachusetts. However, the situation surrounding coronavirus is rapidly evolving and the longer term impact will depend on both the severity and duration of the crisis. If our view of the credit quality of the commonwealth changes, we will update the rating and/or outlook at that time.
RATING OUTLOOK
Massachusetts' stable outlook reflects our expectation that the commonwealth will continue its trend of strong financial management, taking proactive measures to navigate credit challenges emerging during the ongoing global pandemic.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Continued growth of reserves and establishment of stronger constraints on their use
- Established trend of structural budget balance
- Moderated debt and pension burdens, especially relative to peers
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Protracted structural budget imbalance
- Reserves or liquidity that fall below adequate levels
- Growth in leverage relative to state GDP or rising fixed costs relative to state revenue
LEGAL SECURITY
Debt service is paid by the commonwealth pursuant to a contract for state infrastructure development assistance. The commonwealth's obligation to make the payment is irrevocable and is payable by Massachusetts' full faith and credit pledge. The commonwealth expects to pay debt service from general, legally available revenues.
The contract requires the commonwealth to pay directly to the bond trustee an amount equal to the debt service due not less than one business day prior to each debt service payment date. The commonwealth has waived its sovereign immunity and consented to be sued on contractual obligations, although in the event of a suit following default, satisfaction of a court judgment requires legislative appropriation.
USE OF PROCEEDS
Proceeds will be used to advance refund Series 2014 A, B and C bonds for expected net present value savings. Savings will be taken through the life of the bonds, but the preponderance of the monies saved will be applied to significantly reduce debt service through 2025.
PROFILE
The Massachusetts Development Finance Agency is the state's economic development arm, authorized under state statute to issue bonds for infrastructure purposes. It works with for- and not-for-profit businesses, as well as municipalities, to encourage economic growth.
The Commonwealth of Massachusetts is the 15th largest state by population, boasting an estimated 6.9 million residents in 2019. Its gross domestic product, reaching $596 billion, ranks 11th among the states. Per capita income was 132% of the national average in 2019, the 2nd highest.
METHODOLOGY
The principal methodology used in these ratings was US States and Territories published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1084466. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website 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.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
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Genevieve Nolan
Lead Analyst
State Ratings
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Nicholas Samuels
Additional Contact
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