Reuters logo
TEXT-Fitch rates Idaho Housing and Finance GARVEEs 'A+'
September 17, 2012 / 4:22 PM / 5 years ago

TEXT-Fitch rates Idaho Housing and Finance GARVEEs 'A+'

Sept 17 - Fitch Ratings assigns an 'A+' rating to approximately $38 million
new issue Idaho Housing and Finance Association (the association) grant and
revenue anticipation bonds (GARVEEs). Fitch also affirms the 'A+' rating on
approximately $588.7 million of outstanding parity obligations. 

The Rating Outlook is Stable.

Key Rating Drivers

Federal Program Future Uncertain: The Idaho Transportation Department's (ITD) 
receipt of Title 23 funds from the Federal Highway Administration (FHWA) to pay 
debt service depends on the strength, stability and reliability of the Federal 
program that authorizes outlays from the Highway Trust Fund (HTF). Fitch 
recently revised its view of the strength of the Federal program to midrange 
from strong based on uncertain future policy regarding authorization levels 
beyond 2014 and the long-term solvency of the HTF. Strength of the Federal 
Program - Midrange.

Robust Protection against Leverage: ITD covenants to request obligation of 
federal surface transportation funds for debt service no more than seven days 
into each new federal fiscal year, and the state legislature continuously 
appropriates all federal surface transportation receipts. Further, while final 
maturity in 2030 exposes bondholders to a certain degree of reauthorization 
risk, the trust indenture additional bonds test (ABT) limits annual debt service
to 30% of annual apportionments expected to be received, allowing ITD to retain 
sufficient flexibility at the 'A+' level. Structural Features - Strong

Adequate Flexibility to Adjust: Though ITD derives approximately a majority 59% 
of its revenues from federal resources, the ITD retains substantial liquidity on
hand (approximately $133 million, currently well above its anticipated maximum 
annual debt service requirement of $54.9 million) to cover potential 
delays in federal receipts. In addition, ITD maintains no other debt outstanding
than that associated with its GARVEE program. Flexibility of the State 
Department of Transportation - Midrange

What Could Trigger a Rating Action

Federal Program Becomes Weaker: A change in Fitch's view of the strength of the 
Federal program to weak from midrange. 

Lower Federal Revenues or Increased Leveraging: Declines in federal revenues 
below projected levels or additional state leveraging that leads to debt service
coverage ratios below current projections of 2.5x.

Security

The bonds are secured by all federal payments received by the Idaho State 
Highway account, including but not limited to direct GARVEE debt service 
reimbursements to be made under a February 2006 Memorandum of Agreement between 
the ITD and the Federal Highway Administration (FHWA).

Transaction Summary

The association, along with a syndicate led by Citi, plans to price the series 
2012A bonds the first week of October. The association has so far issued six 
series of GARVEE bonds totaling $696.8 million of a total planned $855 million 
to fund highway construction throughout Idaho, with an additional issuance of 
approximately $80 million expected in the fall of 2013. The state legislature 
authorized the initial issuance of GARVEEs in 2005. A memorandum of agreement 
between the FHWA and the ITD and a master financing agreement among the 
Association, ITD and the Idaho Transportation Board (ITB) establish a payment 
stream equal to 90% of debt service requirements in each period. Pledged 
receipts are broadly defined under the indenture to include not only those 
federal surface transportation funds granted for the purpose of paying debt 
service but all other federal surface transportation fund receipts as well, 
meaning these other federal surface transportation funds are reimbursed to the 
state legislature following their annual appropriation of the 10% match.

Based on MAP-21 legislation, ITD projects flat to declining receipts in state 
fiscal year 2013, with a small inflationary increase in 2014 such that 
apportionments and obligation authority equal $279.4 million and $264.6 million,
respectively. Including the projected debt service to be paid on the 2012A bonds
and the bonds expected to be issued in 2013, ITD could handle a 49% drop in 
apportionments from the projected 2014 total and still be able to meet its ABT. 
There is no guarantee, however, that Idaho's federal transportation funding will
grow or even remain stable during subsequent authorization periods. Idaho may be
more susceptible than other states to changes in federal funding policy given 
its status as a donee state; it currently receives $1.66 in federal surface 
transportation funds for each $1.00 it contributes in motor fuel tax revenues.

If the association were to issue up to its ABT limitation and assuming that 
receipts into the HTF were to decline by double the rate that the Environmental 
Protection Agency (EPA) projects passenger car gallons to decline based on 49.6 
mile per gallon corporate average fuel economy (CAFE) standards, debt service 
coverage ratios on highway GARVEEs could drop to approximately 2.5x by 2032.

The Idaho Housing and Finance Association, which is authorized by state statute 
to issue the bonds, is a body politic and corporate created to assure an 
adequate source of capital for affordable housing and has the power to finance 
various facilities for nonprofit corporations. ITD is responsible for building, 
preserving and operating the state transportation system. The ITB is vested with
the authority to control, supervise and administer ITD. Under the master 
financing agreement each subsequent issuance of debt must be authorized by the 
legislature, creating flexibility to expand or contract the size of the program.

Please refer to Fitch's release 'Fitch Revises View of Strength of the Federal 
GARVEE Program; Changes Standalone Ratings,' published Sept. 12, 2012, for more 
information related to Fitch's revised view of the nature of the Federal GARVEE 
program and its effect on standalone GARVEE ratings not legally backed by an 
additional pledge of state resources.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been 
compensated for the provision of the ratings.

Applicable Criteria and(New York Ratings Team)

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below