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Rating Action:

Moody's assigns Aa3 to the Connecticut Higher Education Supplemental Loan Authority's revenue bonds; outlook stable

27 May 2015

New York, May 27, 2015 --

Moody's Rating

Issue: State Supported Revenue and Revenue Refunding Bonds (CHESLA Loan Program) 2015 Series A; Rating: Aa3; Sale Amount: $21,420,000; Expected Sale Date: 06-08-2015; Rating Description: General Obligation

Opinion

Moody's Investors Service has assigned an Aa3 rating and stable outlook to the $21.4 million Connecticut Higher Education Supplemental Loan Authority State Supported Revenue and Revenue Refunding Bonds (CHESLA Loan Program) 2015 Series A. The authority plans to sell the bonds the week of June 8.

SUMMARY RATING RATIONALE

These bonds are special obligations of the authority payable from revenues derived from education loan repayments. The bonds are also supported by amounts "deemed appropriated" by the state to replenish a Special Capital Reserve Fund (SCRF) created under the resolution governing the bonds. The Aa3 rating, the same as the state's general obligation bond rating, reflects the strength of the state's commitment to replenish any draws on the SCRF without the need for appropriation by the legislature.

The Aa3 state rating incorporates Connecticut's high combined fixed costs for debt service, pension, and post employment benefits relative to the state's budget; pension funded ratios that are among the lowest in the country and likely to remain well below average; and minimal reserve levels. The slow pace of the state's economic recovery led to revenue underperformance and persistent budget gaps though the state has recently worked to increase reserves and bring the state budget into fiscal balance.

OUTLOOK

The outlook for Connecticut is stable reflecting the positive steps the state has taken to address its long-standing balance sheet weakness and reduce its fixed post employment benefit costs through pension reforms, as well as the adoption of a budget that largely relies on recurring solutions. We expect that Connecticut's revenue trends should improve as its recovery picks up steam. We also expect that the state will maintain its new commitment to replenishing its rainy day fund over time and addressing its remaining negative GAAP basis unassigned General Fund balance. The slow pace of economic recovery will continue to challenge the state's financial position over the near term.

What could make the rating go up

-- Achievement and maintenance of higher GAAP-basis combined available reserve levels

-- Established trend of structural budget balance

-- Evidence of sustained stronger economic performance

-- Reduced debt ratios relative to Moody's 50-state median and lower fixed annual costs.

-- Significantly improved funding of pension and post-retirement liabilities

What could make the rating go down

-- Lack of improvement in available reserve levels

-- Reversion to significant one-time budget solutions, including deficit financings

-- Revenue weakness driven by delayed economic recovery

-- Cash flow strain stemming from reduced liquidity

-- Significant increase in fixed costs as percent of budget

OBLIGOR PROFILE

The State of Connecticut has a population of almost 3.6 million people. The state, located in the northeastern US, has a large and diverse economy with a gross state product of $249.2 billion. It is the wealthiest state in the country with per capita income of 137.1% of the US average.

The Authority is a subsidiary of the Connecticut Health and Educational Facilities Authority empowered to issue revenue bonds for its student loan program. The student loan program was established in 1985 to provide long-term education loans.

LEGAL SECURITY

SPECIAL CAPITAL RESERVE FUND SUPPORTED BY STATE'S CREDIT QUALITY

These bonds, and parity bonds of the authority under the 1990 resolution, are supported by a SCRF which is a trustee-held fund established from bond proceeds in an amount at least equal to the maximum annual debt service requirement. Should the SCRF fall below this required level, the authority is required under the 1990 resolution to request an appropriation from the state to replenish the SCRF to its required balance, and the state is required by statute to make timely replenishment without the need for further legislative action; amounts needed are "deemed appropriated." The state must transfer from its General Fund to the Trustee amounts necessary to restore the SCRF to the minimum reserve levels (maximum annual debt service) annually and in advance of the succeeding debt service payment date. The SCRF program, which also includes other Connecticut authorities, has not experienced a shortfall requiring a state payment since Connecticut first pledged to do so in 1995.

USE OF PROCEEDS

Proceeds of the bonds will be used to originate education loans under the authority's student loan program and to refund certain prior obligations for debt service savings, various capital projects and for other state purposes.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was US States Rating Methodology published in April 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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 rating action on the support provider and in relation to each particular 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.

Lisa Heller
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Nicholas E Samuels
VP - Senior Credit Officer
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Aa3 to the Connecticut Higher Education Supplemental Loan Authority's revenue bonds; outlook stable
No Related Data.
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