New York, June 29, 2020 -- Moody's Investors Service has assigned Aa1 ratings to the State of Washington's planned issuance of $54.9 million Certificates of Participation, Series 2020B (State and Local Agency Real and Personal Property), and $12.7 million Certificates of Participation, Series 2020C (Taxable) (Local Agency Real Property). Following the issuance of the Series 2020B & 2020C COPs, the state will have approximately $950 million similarly-secured COPs outstanding, all rated Aa1. The outlook is stable.
RATINGS RATIONALE
The Aa1 rating on the COPs, one notch below the Aaa rating on the state's general obligation bonds, reflects the essential nature of the property being financed, the moderate legal structure and subject-to-appropriation nature of the state's payment obligations, active administration of the financing program by the state treasurer's office, and the state's established track record of making appropriation-backed payments under a variety of financing programs.
The Aaa rating on the state's general obligation bonds reflects its sizable financial reserves entering the current downturn, the exceptional growth of the state's economy in recent years driven largely by the technology sector in the Seattle (Aaa stable) metro area, and the consequent economic diversification lessening dependence on aircraft manufacturing by The Boeing Company (Baa2 negative). Additional strengths include above-average wealth and income levels, and strong fiscal governance practices. While the state's debt levels are above average, they have been declining relative to the 50-state medians and the state's debt and pension liabilities combined, as well as its fixed costs, are comparable to medians. Frequent voter initiative activity adds budget challenges, but the legislature has broad authority to suspend voter-enacted statutes and a history of responding effectively to maintain budget balance.
Like all US states, Washington is facing a significant shortfall in tax revenues in fiscal 2020 and 2021 as a result of the coronavirus pandemic. Moody's expects that the shortfall will be addressed by a combination of spending cuts, measured drawdowns of reserves, and federal assistance.
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 the State of Washington. 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 State of Washington changes, we will update the rating and/or outlook at that time.
RATING OUTLOOK
Washington's outlook is stable, reflecting the positive underlying fundamentals of its economy, sizable reserves entering the current downturn, strong governance practices and manageable long-term liabilities. We expect that the state will continue to address budget gaps that emerge, as it has in the past.
FACTORS THAT COULD LEAD TO AN UPGRADE
- Not applicable.
FACTORS THAT COULD LEAD TO A DOWNGRADE
- A sustained or structural weakening of the state's economy.
- Protracted structural budget imbalance and/or a shift to reliance on one-time budget solutions.
- A significant deterioration of the state's cash position.
LEGAL SECURITY
The Series 2020B & 2020C COPs are secured by and expected to be paid from payments made by participating state and local agencies including: (1) lease payments for real property projects, and (2) installment purchase payments for personal property.
Payments made by the state agencies are subject to appropriation by the legislature and executive order reduction by the governor. The state has never failed to make needed appropriations to meet the payment obligations for state agencies related to its COPs.
Payments made by the local agencies are secured by the full faith and credit of the local agencies, effectively general obligation, limited tax obligations. In the event any local agency fails to make its scheduled payment, the state treasurer is obligated to make the payment on behalf of the local agency using state funds; such state payments, if necessary, are subject to appropriation by the legislature and executive order reduction by the governor. The treasurer is further obligated to withhold an amount equal to the payment advance from the local agency's share of state aid, to the extent legally permissible. No local agency has ever failed to make a payment obligation related to state-issued COPs.
USE OF PROCEEDS
Proceeds of the Series 2020B & 2020C COPs will be used to finance the cost of acquisition and construction of real and personal property for participating state and local agencies.
PROFILE
Washington is the thirteenth largest state by population, at 7.6 million. Its state gross domestic product is tenth largest, at $599.6 billion. The population is relatively wealthy, with per capita personal income equal to 114.5% of the US level and a poverty rate in the bottom third among states.
METHODOLOGY
The principal methodology used in these ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1102364. 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.
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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.
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Kenneth Kurtz
Lead Analyst
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Baye Larsen
Additional Contact
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