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Rating Action:

Moody's assigns Aaa rating to State of Alaska's planned $165 million issuance of Series 2013 General Obligation Bonds

Global Credit Research - 04 Jan 2013

Stable outlook applies to current issue and $610 million of outstanding state debt

New York, January 04, 2013 -- Moody's Rating

Issue: General Obligation Bonds, Series 2013A (Taxable Qualified School Construction Bonds - Direct Payment); Rating: Aaa; Sale Amount: $11,945,000; Expected Sale Date: 1-15-2013; Rating Description: General Obligation

Issue: General Obligation Bonds, Series 2013B; Rating: Aaa; Sale Amount: $153,215,000; Expected Sale Date: 1-15-2013; Rating Description: General Obligation

OPINION

Moody's Investors Service has assigned a Aaa rating and stable outlook to the State of Alaska's planned $165 million of Series 2013 General Obligation Bonds in the two series listed above. The bonds are expected to be priced on January 15 and 16. Proceeds will fund various state education projects. Series B will consist of standard debt that provides tax-exempt interest payments, while the Series A bonds will be issued as taxable Qualified School Construction Bonds (QSCBs). Under the American Recovery and Reinvestment Act of 2009 (ARRA), states and large municipalities were authorized to issue certain amounts of QSCBs, for which the federal government provides either tax credits or interest-subsidy payments. QSCB proceeds will finance design and construction of school facilities. The state will be issuing the bonds as direct-payment interest rate subsidy. Proceeds of the Series B bonds will finance design and construction of library, research and other education-related facilities.

SUMMARY RATING RATIONALE

Alaska's accumulation in recent years of large financial reserves has left it well positioned to manage potential fiscal challenges, supporting the state's Aaa rating. Alaska has benefitted from elevated oil prices and from conservative management of its petroleum-based revenues. Alaska's dependence on oil extraction leaves it vulnerable to both global economic conditions and to oil production logistical factors, but the state's financial reserves should help maintain fiscal strength during the next five to 10 years. During this period, we also expect the state will pursue revenue diversification by facilitating production and shipping of its vast natural-gas resources.

STRENGTHS

- Very large revenue cushion in Constitutional Budget Reserve Fund (CBRF) and other funds

- History of conservative oil price and production-volume forecasting

- Conservative fiscal practices, highlighted by use of 2008 oil revenue windfall to rebuild CBRF

- Potential to transition over time to natural gas from oil as primary revenue source

- Low debt burden compared to available reserves

CHALLENGES

- Revenue reliance on North Slope oil production, which is in a long-term decline and subject to price volatility and production disruptions

- Narrow economic base with concentration in government employment sector

- Lack of certain best practices for financial management

- Relatively weak pension funding

OUTLOOK

The outlook for Alaska is stable, based on expectations the state will continue to make conservative oil revenue forecasts and plan for the eventual depletion of its oil resources, and that its large budgetary reserves will allow it to withstand short-term production disruptions.

WHAT COULD MOVE THE RATING DOWN

- Sustained oil price level below projection

- Deterioration in output volumes

- Rapid depletion of reserves

- Revision of tax regime projected to erode revenues over an extended period

The principal methodology used in this rating was Moody's State Rating Methodology published in November 2004. 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.

Please see the credit ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Edward Hampton
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

Emily Raimes
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 Aaa rating to State of Alaska's planned $165 million issuance of Series 2013 General Obligation Bonds
No Related Data.

 

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