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Rating Action:

Moody's assigns Aa3 to the California Health Facilities Financing Authority's No Place Like Home Program Senior Revenue Bonds, Series 2019; outlook stable

31 Oct 2019

New York, October 31, 2019 -- Moody's Investors Service has assigned a Aa3 rating to the California Health Facilities Financing Authority's $500 million No Place Like Home Program Senior Revenue Bonds, Series 2019 (Social Bonds-Federally Taxable). The authority anticipates pricing the bonds on November 19, 2019. The rating outlook is stable.

RATINGS RATIONALE

The Aa3 incorporates the narrow nature of the pledge that consists of a portion of a 1% tax on taxable income over $1 million, which has worked out to be roughly 2.3% of the State of California's (Aa2 stable) total personal income tax revenue over the past several years. The rating balances the narrowness of the pledge and the highly volatile nature of the 1% tax revenue with very strong coverage of debt service. Strong debt service coverage is largely a consequence of a statutory limitation on the amount of debt that can be issued with this pledge and the amount of annual debt service that can be paid from the 1% tax revenue. The rating recognizes the pivotal role that the State of California plays in the authorization and issuance of the bonds, the authorization and collection of the 1% income tax, and the enactment of other statutes that govern the flow of funds and the issuance of additional debt.

RATING OUTLOOK

The stable outlook is based on the stable outlook assigned to the State of California, which reflects the expectation that the state's massive economy and wealth will generate the resources necessary to maintain structural balance in the near term and to keep long-term liability and fixed cost burdens in check over a longer time horizon.

FACTORS THAT COULD LEAD TO AN UPGRADE

- The rating on these bonds could be upgraded if the state's general obligation rating was upgraded or the state significantly broadened the pledged revenue base

FACTORS THAT COULD LEAD TO A DOWNGRADE

- The rating on these bonds could be downgraded if the state's general obligation rating was downgraded

- The rating could also be downgraded if collections of the state's 1% tax on incomes over $1 million significantly declined or if amendments to state statute weakened existing bondholder protections

LEGAL SECURITY

The bonds are ultimately secured by certain income taxes that the State Controller deposits, per statute, in a segregated fund. The flow of income tax revenue from the state's taxpayers to the bond trustee is governed by state statute, the bond indenture, a loan agreement between the California Health Facilities Financing Authority and the California Department of Housing and Community Development, and a service contract between the same authority and department.

State statute directs the State Controller to deposit a specific share of monthly personal income taxes into the state's Mental Health Services Fund. Statute sets the share of monthly taxes deposited in the fund at a level approximating the annual tax liability from a 1% income tax levied specifically on taxable incomes of greater than $1 million. The statute establishes a process for correcting the amount deposited in the Mental Health Services Fund once the actual liability for the 1% tax is known.

The State Controller transfers, on a monthly basis, certain funds deposited in the Mental Health Service Fund to a Supportive Housing Program subaccount. Statute limits the transfers to $140 million per year are the ultimate source of debt service payments. The authority will use funds deposited in the housing program subaccount to make contractual payments to the department per the service contract. The department uses the service contract payments to make loan repayments back to the authority per the loan agreement. The authority pledges the loan payments to the trustee.

USE OF PROCEEDS

The bonds will finance grants or loans to local communities that will use the funding to provide permanent supportive housing for persons experiencing homelessness, chronic homelessness, or who are at risk of chronic homelessness and in need of mental health services.

PROFILE

The California Health Facilities Financing Authority is a public instrumentality of the state created in 1979 to, among other things, issue bonds for the construction or acquisition of health facilities operated by participating health institutions.

The State of California is by far the largest state in the US. Its nearly $3.1 trillion gross domestic product accounts for just over 14% of the nation's economic output. It is home to almost 40 million residents, or just over 12% of the nation's population.

METHODOLOGY

The principal methodology used in this rating was US Public Finance Special Tax Methodology published in July 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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.

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.

Matthew Butler
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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