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28 Jun 2018
New York, June 28, 2018 -- Moody's Investors Service has assigned a Aa1 rating to the Virginia Port Authority's $60.7 million Commonwealth Port Fund Revenue Refunding Bonds, Series 2018 (Taxable). The outlook is stable.
The Aa1 rating on the Virginia Port Authority's (VPA) Commonwealth Port Fund (CPF) revenue bonds reflects the obligation of the Commonwealth of Virginia (Aaa stable) to make a sum sufficient appropriation from legally available funds to pay debt service on the bonds should CPF revenues be insufficient. The one-notch distinction in the rating from the commonwealth's general obligation rating incorporates the essential nature of the projects financed by the bonds and the moderately strong legal structure, including the risk of non-appropriation.
The VPA CPF revenue bonds carry the stable outlook of the Commonwealth of Virginia. Virginia's stable outlook is based on improving revenue performance and structurally balanced operations that will continue as a result of the commonwealth's strong governance and financial management structure.
FACTORS THAT COULD LEAD TO AN UPGRADE
- Given that the bonds are rated based on the state's Aaa rating and notched once off the state's rating due to the risk of non-appropriation, an upgrade is unlikely
FACTORS THAT COULD LEAD TO A DOWNGRADE
- A downgrade of the Commonwealth of Virginia's rating
- Non-appropriation of needed funds for debt service
The bonds are secured primarily by CPF revenues. The CPF is allocated 4.2% of the revenues deposited into the Transportation Trust Fund, which include general sales and use taxes, motor fuel taxes, motor vehicle sales taxes, and motor vehicle registration fees. CPF revenues have increased at a compound annual growth rate of 2.9% from fiscal year 2012-2017. Pro forma maximum annual debt service coverage on CPF revenue bonds including the 2018 issuance is 2.21 times based on fiscal 2017 CPF revenues.
Pursuant to the bond resolution, VPA has covenanted to include in the authority's budget that is submitted to the governor a request for a sum sufficient appropriation to pay debt service on the CPF bonds first from legally available funds of the Transportation Trust Fund and then from the General Fund should CPF revenues be insufficient. The sum sufficient appropriation by the General Assembly provides direct access to the resources of the commonwealth's Transportation Trust Fund and General Fund to make up any deficiency in debt service, which is the basis for the CPF revenue bond rating that is one notch below the commonwealth's general obligation rating. The commonwealth's general obligations have been rated Aaa since 1938. Although it has no legal obligation to do so, the General Assembly has a strong incentive to appropriate in the case of a deficiency due to the continuing need for issuance under this program to support the capital funding needs of VPA.
USE OF PROCEEDS
Proceeds from the Series 2018 bonds will be used to refund all or a portion of Series 2011 bonds for estimated net present value savings of $2.4 million, or approximately 4% of the refunded bonds, with no extension of final maturity.
Virginia is the twelfth largest state by population (8.5 million people in 2017) and by GDP ($509 billion in 2017 current dollars). VPA is a political subdivision of the commonwealth and is responsible for fostering and stimulating the shipment of cargoes and commerce through the ports of Virginia. VPA is governed by a 13-member Board of Commissioners consisting of the state treasurer, the chief executive officer (CEO) of the Virginia Economic Development Partnership, and 11 members appointed by the governor.
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.
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.
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