Action affects about $6 billion in outstanding debt
New York, February 18, 2014 -- Moody's Investors Service has downgraded 17 standalone GARVEE bond ratings
by one notch. The action affects 16 ratings of GARVEEs secured
solely by a pledge of federal highway aid and 1 rating of mass transit
aid GARVEEs. Most of the ratings were downgraded to A1 from Aa3,
with three ratings downgraded to A2 from A1. For a complete list
of the ratings affected by this action, please see the end of the
report.
SUMMARY RATING RATIONALE
The downgrades reflect changes in federal liquidity management which increase
the risk of interruption of timely payments of federal transportation
aid due to states and transit entities. These include the government's
recurring episodes of threatened debt ceiling expirations, government
shutdowns, and the threat of depletion of the highway trust fund
balance later this year due to the fund's persistent structural
imbalance.
The downgrades affect GARVEE bonds that are "standalone" (those
without additional pledged revenues securing the bonds) and lack traditional
structural protections against liquidity risk, such as cash-funded
debt service reserve funds, or legal covenants to set aside debt
service payments well in advance of payment dates. No action has
been taken on GARVEE bonds with pledged revenues in addition to the federal
revenues or standalone GARVEE bonds with legal structural protections
against liquidity risk.
STRENGTHS
-- Transportation infrastructure is essential to economic
functioning of the US economy
-- Long history of uninterrupted flow of federal funds to
states and, to a lesser degree, mass transit agencies
-- Strong leverage constraints and debt service coverage
ratios for stand-alone highway GARVEEs; moderate leverage
constraints and debt service coverage ratios for mass transit
GARVEEs
--Strong management of cash flow and federal reimbursement
process by transportation agencies and FHWA
CHALLENGES
-- Increased need for liquidity protections given new risks
of timely federal payments and reimbursements to states and transit entities
-- Large structural imbalance between federal fuel tax revenues
and authorized federal transportation spending necessitates general fund
support, which has become less reliable in light of federal budgetary
pressure
-- Shorter two-year duration of current transportation
reauthorization compared to prior ones increases likelihood of future
changes to the program with potential negative effect on amount and timing
of funds available for debt service
-- Lack of federal obligation to continue the federal aid
highway program; nothing prevents the federal government from making
programmatic changes detrimental to bondholders
AFFECTED ISSUERS
TO A1 FROM Aa3:
California Department of Transportation (Federal Highway Grant Anticipation
Bonds)
District of Columbia (Federal Highway Grant Anticipation Revenue Bonds)
Series 2012
Georgia State Road and Tollway Authority (Federal Highway Grant Anticipation
Revenue Bonds)
Idaho Housing and Finance Association (Grant and Revenue Anticipation
Bonds Federal Highway Trust Fund)
Kentucky Asset/Liability Commission (Project Notes, Federal Highway
Trust Fund)
Maine Municipal Bond Bank (Grant Anticipation Bonds )
Michigan (Grant Anticipation Bonds - 2009 series)
Montana Department of Transportation (Grant Anticipation Notes )
New Hampshire (Federal Highway Grant Anticipation Bonds)
North Carolina (Grant Anticipation Revenue Vehicle Bonds)
Oklahoma Department of Transportation (Grant Anticipation Notes)
Rhode Island Economic Development Corporation (Grant Anticipation Bonds)
Washington (Grant Anticipation Revenue Bonds)
West Virginia Commissioner of Highways (Surface Transportation Improvements
Special Obligation Notes)
TO A2 FROM A1
Michigan (Grant Anticipation Bonds - 2007 series)
New Jersey Transportation Trust Fund Authority (Grant Anticipation Bonds)
New Jersey Transit Corporation (Senior Master Lease Certificates of Participation)
OUTLOOK
The negative outlook on the standalone GARVEE bond ratings reflects continuing
uncertainty surrounding future level and structure of federal transportation
funding. Authorization for MAP-21 expires September 30,
2014 and the balances in the HTF may be depleted earlier barring congressional
action.
WHAT COULD CHANGE THE RATINGS UP
-- Significant and sustained increase in Highway Trust Fund
revenues not dependent on periodic and uncertain general fund support
combined with longer reauthorization periods
-- Enhancements of individual transactions' legal
protections against liquidity risk related to timing of federal reimbursements
WHAT COULD CHANGE THE RATINGS DOWN
-- Discontinuation or significant reduction in federal transportation
grant program
-- Our expectation that there will be a lapse in reauthorization
of federal transportation spending
-- Federal action or inaction that results in interrupted
cash flows to states
-- Sharp decline in underlying HTF revenues caused by economic
stress, tax inefficiency or redirection of fuel taxes to general
fund
--Individual GARVEE ratings could go down if further leveraging
materially reduces coverage of maximum annual debt service
RATING METHODOLOGY
The principal methodology used in this rating was US Public Finance Special
Tax Methodology published in March 2012. 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.
Marcia J Van Wagner
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
Julius Mavro Vizner
Asst Vice President - Analyst
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 downgrades 17 GARVEE ratings vulnerable to potential federal payment interruptions; outlook remains negative