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Rating Action:

Moody's assigns Aa3 to Maine's Series 2018A Lease Rental Revenue Bonds, affirms outstanding GO and notched ratings; outlook stable

28 Aug 2018

New York, August 28, 2018 -- Moody's Investors Service has assigned a Aa3 rating to the State of Maine's $49.1 million Lease Rental Revenue Bonds, Series 2018A, to be issued by the Maine Governmental Facilities Authority (MGFA). Concurrently, Moody's has affirmed the Aa2 rating on the state's outstanding general obligation (GO) bonds, the Aa3 rating on outstanding lease rental revenue bonds, and the A2 rating on outstanding student loan revenue bonds issued by the Finance Authority of Maine (FAME) and the Maine Educational Loan Authority. The outlook on all the bonds is stable.

RATINGS RATIONALE

The Aa3 rating on the lease rental revenue bonds reflects the obligation of the State of Maine to make payments from funds appropriated by the legislature. The one-notch distinction in the rating from the state's GO 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 Aa2 rating on Maine's GO bonds factors in the state's stable economy that will be challenged by weak demographic trends, an improving financial position, though GAAP-basis available fund balance remains below-average, and an elevated combined debt and pension burden that is mitigated by rapid amortization of debt and pension liabilities.

The A2 rating on the student loan revenue bonds is based on the state's moral obligation pledge to restore funding to the capital reserve fund in the event that it is used for debt service. Factored into the three-notch distinction in the rating from the state's GO rating are the essential nature of the projects financed by the bonds and the moderately strong legal structure, including timing and payment mechanics.

RATING OUTLOOK

Maine's stable outlook reflects an improving financial position that will continue to improve given strong revenue performance in fiscal 2018 and adherence to governance best practices. According to preliminary figures, General Fund revenue collections came in 2.3% over budgeted revenues for fiscal 2018 (ended June 30, 2018).

FACTORS THAT COULD LEAD TO AN UPGRADE

- Sustained population and employment growth coupled with a decline in debt and pension liabilities

- Maintenance of strong reserve levels that would provide satisfactory cushion in the event of an economic downturn and mitigate challenges of weak demographic trends and above-average liabilities

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Return to severe structural imbalance

- Declines in population and employment that negatively impact wage and personal income growth

LEGAL SECURITY

The MGFA lease rental revenue bonds are issued under a master lease with security derived from rental obligations subject to legislative appropriation. The state's obligation to make lease payments is absolute and unconditional, regardless of whether or not the lessee possesses or uses the leased premises. Pursuant to the lease agreement, the state agrees to seek appropriation in the budget process sufficient to make full and timely lease rental payments. In the event of non-appropriation, the authority may elect to terminate the lease. However, the authority and bondholders have no lien on project facilities and have no right or interest in the properties financed. The state is responsible for operating and maintenance costs of the facilities. The supplemental bond resolution has no provision for a debt service reserve fund, but debt service payment dates in October and April are sufficiently distant from the beginning of the fiscal year (July 1) that late budget passage is unlikely to threaten timely lease rental payments.

The state pledges its full faith and credit to its general obligation bonds. The state constitution prioritizes debt service ahead of all other uses of general fund revenues.

Security for the student loan revenue bonds is provided by the State of Maine's moral obligation pledge to appropriate amounts needed to make up for a deficiency in the capital reserve fund (CRF) if it is drawn upon to cover debt service on the student loan revenue bonds after other sources are exhausted. The authorization to pledge the state's moral obligation commitment to replenish the CRF for FAME's student loan revenue bonds is established in state statute. The CRF is required to be funded at the amount of debt service coming due in each succeeding calendar year and is funded by a combination of cash and a capital reserve fund insurance policy (surety bond) issued by Assured Guaranty Corp. (A3 stable).

USE OF PROCEEDS

Proceeds from the Series 2018A lease rental revenue bonds will be used to finance various state facilities, including a judicial data storage project and a correctional facilities project.

PROFILE

The State of Maine is the 42nd largest state by population (1.3 million people in 2017) and the 43rd largest by GDP ($61.4 billion in 2017 current dollars). The state's per capita personal income is below-average at 89.4% of the US level.

MGFA was created in 1997 for the purpose of assisting in financing the acquisition, construction, improvement, and reconstruction and equipping of additions to structures designed for use as governmental facilities.

FAME was established in 1983 and in 2015 became the successor to the Maine Educational Loan Authority. FAME is authorized to issue revenue bonds to provide funding for education loans.

METHODOLOGY

The principal methodology used in the general obligation ratings was US States and Territories published in April 2018. The principal methodology used in the lease rental revenue and moral obligation ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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

Emily Raimes
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.
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