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Rating Action:

Moody's assigns Aa1 to Virginia's School Financing Bonds, Series 2021A&B; outlook stable

06 Apr 2021

New York, April 06, 2021 -- Moody's Investors Service has assigned Aa1 ratings to the Commonwealth of Virginia's $79 million School Financing Bonds (1997 Resolution) Series 2021A (Tax-Exempt) and $23 million School Financing Bonds (1997 Resolution) Series 2021B (Taxable), to be issued by the Virginia Public School Authority (VPSA). The outlook is stable.

RATINGS RATIONALE

The Aa1 rating on VPSA's School Financing Bonds reflects the obligation of the Commonwealth of Virginia (Aaa stable) to make payments from funds appropriated by the General Assembly. Security rests with the continued willingness of the commonwealth to make payments in amounts sufficient to meet debt service requirements as they come due. 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.

RATING OUTLOOK

VPSA's School Financing Bonds carry the stable outlook of the Commonwealth of Virginia. Virginia's stable outlook is based on continued budgetary balance and financial flexibility maintained through the use of strong governance and financial management practices.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- 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 OF THE RATINGS

- A downgrade of the Commonwealth of Virginia's rating

- Non-appropriation of needed funds for debt service

LEGAL SECURITY

The program's local school bonds are structured to make debt service payments two weeks before the February 1 and August 1 payment dates of VPSA debt, providing a window during which state officials can implement the state aid intercept provision in case of a locality's default. Upon notification of a default on a local bond (which has never occurred), the state comptroller is directed to withhold payments to the locality, including funds appropriated to it by the General Assembly for any and all purposes. In such an instance, payment on the local school bonds effectively becomes a loan for which the commonwealth is repaid through retention of the locality's state aid. Given this structure and the program's mechanics, the intercept would provide for timely payment of debt service, if called upon.

If the intercept mechanism fails to pay debt service, the 1997 resolution contemplates that biennially the General Assembly will appropriate to the VPSA a sum sufficient to cover debt service costs. The commonwealth's Literary Fund is the primary source of the payment, followed by the General Fund, both of which provide substantial resources to pay the debt service. While the General Assembly is not legally obligated to appropriate, the VPSA pledged in the 1997 resolution to request each year that the governor's budget bill includes an appropriation to cover total annual debt service due, and the legislature has made such a sum sufficient appropriation in every enacted budget since then; this appropriation is the basis for the rating assigned.

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 due to the continuing need for issuance under this program to support the capital funding needs of public schools. Since the sum sufficient appropriation is a prerequisite for the issuance of additional bonds, failure to appropriate would halt any further program financing of local school capital projects. Because of these factors, we expect that the General Assembly will continue to make biennial appropriations to the VPSA sufficient for it to pay annual debt service coming due during that period.

USE OF PROCEEDS

Proceeds from the Series 2021A&B bonds will be used to finance capital projects for public schools in various localities across the commonwealth as well as refund for savings certain outstanding obligations of various localities that originally financed public school projects.

PROFILE

Virginia is the twelfth largest state by population (8.6 million people in 2020) and the thirteenth largest state by GDP ($551.8 billion in 2020 current dollars). VPSA is an agency of the commonwealth that is authorized to provide financing to cities and counties for capital construction of primary and secondary schools. The authority is governed by an eight-member board comprised of the state treasurer, the state comptroller, the superintendent of public instruction, and five appointments by the governor.

METHODOLOGY

The principal methodology used in these ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1260202. 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_1243406.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

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

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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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