Fitch Rates Oklahoma's $118MM ODFA Bonds 'AA'; Outlook Stable
08 July 2015 - 03:26AM
Business Wire
Fitch Ratings has assigned an 'AA' rating to the following
obligations of the state of Oklahoma, Oklahoma Development Finance
Authority (ODFA), Oklahoma State System of Higher Education:
--$42.49 million master real property lease revenue bonds,
tax-exempt series 2015B (subject to annual appropriation);
--$75.305 million master real property lease revenue bonds,
federally taxable series 2015C (subject to annual
appropriation).
The bonds are expected to sell via negotiation on or about July
28 and 29, 2015.
The Rating Outlook is Stable.
SECURITY
The bonds are limited special obligations of the ODFA secured by
annual appropriations of the state of Oklahoma. The intended source
of repayment on the obligations is the state board of regents for
higher education on behalf of certain Oklahoma colleges and
universities from their annual budget allocations.
KEY RATING DRIVERS
APPROPRIATION MECHANISM: The rating on the ODFA bonds, backed by
Oklahoma's annual legislative appropriation pledge, is one notch
below the state's 'AA+' general obligation (GO) bond rating. This
reflects the state's general credit standing, sound lease
structure, and statutory authorization for these types of
bonds.
CONSERVATIVE FINANCIAL MECHANISMS: The state's financial
operations benefit from the maintenance of separate rainy day (RDF;
the constitutional reserve) and cash flow reserve funds and a
policy of appropriating only 95% of expected revenues. The limited
appropriation of revenues provides a cushion for the variability in
the state's revenue sources, particularly the cyclical collections
of severance tax revenue.
CONCENTRATED ECONOMIC BASE: Growth in the state's
commodity-based economy, based on oil and natural gas production as
well as various agricultural products, has slowed as a result of
the current low oil price environment. While unemployment rates
through May 2015 remained low and below national averages, the rate
over the past two months has escalated and payrolls have declined
as the natural resources slowdown has been incorporated.
MANAGEABLE LIABILITY POSITION: Debt levels are low, and
tax-supported debt is amortized relatively quickly. Several rounds
of pension reform have improved the state's long-term liability
position, with the combined burden of debt and pensions slightly
above the state median. Most new debt issuance is in the form of
lease revenue bonds.
RATING SENSITIVITIES
The rating is sensitive to shifts in the state's GO rating to
which it is linked.
CREDIT PROFILE
The ODFA bonds currently offered are secured by lease rental
payments by the State Regents from state general fund revenues,
subject to annual legislative appropriation. ODFA is one of the
principal financing agencies of the state. Both the state
constitution and enabling statutes provide for appropriation of
lease payments in support of the master real property program.
Additionally, the master leasing structure on behalf of the State
Regents has been validated by the Oklahoma state supreme court.
The terms of the leases extend through the life of the bonds;
the maximum lease term permitted by the ODFA is 30 years and lease
payments are not abatable. The current offering will provide
funding for four projects within the Oklahoma State University
(OSU) system. Three of the projects occur on the OSU Stillwater
campus;: a medical simulation facility and parking, construction of
a new utility plant, and construction of a new parking facility.
The fourth project is the construction and equipping of a new
health services facility on the Oklahoma City campus of OSU.
All higher education appropriations to the State Regents are
consolidated, with the State Regents authorized to allocate funds
first to payment of lease rentals of each participating
institution. The State Regents covenant to include a budget request
for lease payments sufficient to pay debt service for these bonds.
The fiscal 2016 operating fund appropriation for the State Regents
is $963.4 million; a 3.5% reduction from the fiscal 2015
appropriation, enacted as part of state's plan to close an
identified $611 million revenue shortfall in that fiscal year.
Despite the appropriation reduction, Fitch believes the state
remains committed to funding its higher education institutions.
The state's 'AA+' GO bond rating and Stable Outlook reflect low
debt levels and disciplined financial policies. This includes an
appropriation limit of 95% of certified general fund revenues,
close monitoring of revenue results, and provisions to maintain
separate RDF and cash reserve funds. The state expects to use a
portion of the RDF to fund budgetary expenditures in fiscal 2016 in
addition to other one-time actions, including fund sweeps. Despite
these actions, Fitch believes financial operations continue to
benefit from disciplined financial policies. Tax rate adjustments
are limited by a supermajority requirement of the legislature or
voter referendum to raise tax rates.
For additional information on the state of Oklahoma, please see
'Fitch Rates Oklahoma's $10MM ODFA Bonds 'AA'; Outlook Stable'
dated June 8, 2015 and available at www.fitchratings.com.
Additional information is available at
'www.fitchratings.com'.
Applicable Criteria
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. State Government Tax-Supported Rating Criteria (pub. 14 Aug
2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987547
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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Fitch RatingsPrimary AnalystMarcy BlockSenior
Director+1-212-908-0239Fitch Ratings, Inc.33 Whitehall StreetNew
York, NY 10004orSecondary AnalystKaren KropSenior
Director+1-212-908-0661orCommittee ChairpersonLaura PorterManaging
Director+1-212-908-0575orMedia Relations:Sandro Scenga, +1
212-908-0278sandro.scenga@fitchratings.com