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Rating Action:

Moody's assigns Aa1 to Nevada's Series 2020A&B GO bonds; outlook negative

24 Sep 2020

New York, September 24, 2020 -- Moody's Investors Service has assigned Aa1 ratings to the State of Nevada's $112.3 million General Obligation (Limited Tax) Capital Improvement, Historic Preservation and Refunding Bonds, Series 2020A and $3.3 million General Obligation (Limited Tax) Natural Resources and Refunding Bonds, Series 2020B. The outlook is negative.

RATINGS RATIONALE

The Aa1 general obligation (GO) rating reflects the state's growing economy before the coronavirus outbreak, as demonstrated by robust employment and population growth and favorable demographic trends; economic concentration in the gaming and tourism industry; a volatile revenue structure; strong governance framework; and moderate debt and pension burden.

The state's use of stabilization reserves to cover budget gaps caused by the coronavirus has left little buffer for unanticipated revenue shortfalls beyond fiscal 2021. The state's economy is concentrated in the tourism industry and most of Nevada's general revenue is comprised of discretionary consumption taxes. Nevada's sales and gaming tax collections have declined sharply because of the severe curtailment of economic activity resulting from efforts to stem the spread of the virus.

Nevada's tourism industry will be slow to recover because of the negative impact of the coronavirus on consumer income and the need to reduce capacity at casinos, which will make it difficult for the state to return to budgetary balance in fiscal 2022. Nevada's strong liquidity position entering the crisis and federal aid has helped the state address budget gaps. Substantial federal emergency assistance bolstered household income and consumption, provided aid to hospitals, reimbursed state and local governments for coronavirus-related spending and enhanced federal Medicaid matching. However, the end to many federal aid programs and uncertainty regarding the trajectory of the virus and consumer confidence in the coming months will hinder the state's ability to maintain budgetary balance.

RATING OUTLOOK

The negative outlook reflects the severe economic and financial impact of the coronavirus on Nevada's tourism-based economy. Reduced capacity at casinos coupled with the nationwide decline in consumer income caused by job losses has led to severe budgetary strain.

The state used its stabilization reserves to help cover its budget gaps in fiscal 2020 and 2021, which has left little buffer for unanticipated revenue shortfalls beyond 2021. The state addressed a $1.2 billion projected revenue shortfall in fiscal 2021 with a total of $934 million of expenditure cuts, equaling about 20% of originally budgeted general appropriations. The remainder of the projected shortfall was balanced by one-time revenue enhancements. The ending general fund balance for fiscal 2021 is projected to meet the state's statutory requirement to provide for a reserve no less than 5% of general operating appropriations. Although the state has taken significant action to address budget gaps for the fiscal 2020-21 biennium, a prolonged slump in tourism and consumer spending and continued uncertainty surrounding the coronavirus will lead to additional budgetary strain heading into fiscal 2022.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Significant rebuilding of stabilization reserves

- Substantial diversification of the state's economy and revenue structure

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Multi-year budgetary imbalance that leads to low liquidity

- Prolonged change in consumer behavior that makes reliance on gaming revenue unsustainable

LEGAL SECURITY

Nevada pledges its full faith and credit to its general obligation bonds. To the extent that other monies are not available, the state levies a property tax equal to $0.17 per $100 of assessed valuation to pay general obligation debt service.

USE OF PROCEEDS

Proceeds from the Series 2020A GO bonds will be used to finance various capital improvement projects, provide financial assistance for preserving and protecting historic buildings and refund certain outstanding Series 2010C bonds for savings. Proceeds from the Series 2020B GO bonds will be used to finance grants for water conservation and capital improvements to certain water systems and refund certain outstanding Series 2010D bonds for savings.

PROFILE

Nevada is the 32nd largest US state by population (about 3.1 million in 2019) and by GDP ($177.6 billion in 2019 current dollars).

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.

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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.

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Pisei Chea
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

Kenneth Kurtz
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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