NEW YORK - (Business Wire) Fitch Ratings assigns an 'A+' rating to approximately $166.2 million Idaho Housing and Finance Association Grant and Revenue Anticipation Bonds Federal Highway Trust Fund, 2008 Series A, and affirms the 'A+' rating on the 2006 series. The 2008 series A bonds are expected to sell on or about March 11 and close on March 18. Bond proceeds will finance a portion of the construction costs for six transportation projects pursuant to the Connecting Idaho program and pay the cost of issuance. The bonds reach final maturity in 2026. The Rating Outlook is Stable.
This is the second issuance of a total planned $960 million to fund highway construction throughout Idaho, with further issuance of approximately $196 million expected later in 2008. The state legislature authorized the initial issuance of grant and revenue anticipation bonds in 2005. A memorandum of agreement between the Federal Highway Administration (FHWA) and the Idaho Transportation Department (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 other federal surface transportation fund reimbursements can be used to pay the remaining 10% of debt service. This portion may also be paid, subject to annual appropriation, from state funds.
Key credit strengths include the long established track record of federal transportation funding, ITD's covenant to request obligation of federal surface transportation funds no more than seven days into each new federal fiscal year, and the continuous appropriation for debt service by the state legislature of all federal surface transportation receipts. Bondholder security is sufficiently protected by the master indenture's additional bonds test requirement that debt service on a current and projected basis be no more than 20% of ITD's federal aid apportionments through fiscal 2010 and no more than 30% thereafter.
The key risk for these bonds, similar to other bonds secured by federal surface transportation funds, is the potential for significant changes in federal policy at the end of each surface transportation funding authorization period. While interruption in the flow of funding is highly unlikely given broad-based political support for the program, the most recent multi-year reauthorization was significantly delayed. The Transportation Equity Act for the 21st Century (TEA-21) expired in 2003 without a successor program in place. Short-term extensions were passed 12 times but nearly two years elapsed before enactment of The Safe, Accountable, Flexible, and Efficient Transportation Equity Act - A Legacy for Users (SAFETEA-LU) in 2005.
The 18-year maturity for this series exposes bondholders to a greater level of reauthorization risk than some other bonds of the same type. Assuming the continued practice of six-year federal transportation authorization periods, the bonds will likely span three such periods, while similar debt programs with shorter maturities generally span up to two authorization periods. Increased reauthorization risk is partly mitigated by a debt service coverage ratio on the entire planned $960 million issuance of no less than 3.8 times fiscal 2007 federal receipts of $283 million. 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 average to changes in federal funding policy given its status as a donee state: it currently receives $1.57 in federal surface transportation funds for each $1.00 it contributes in motor fuel tax revenues.
The Connecting Idaho Program is a critical element of the state's transportation investment strategy and involves new highway links, roadway reconstruction and other improvements throughout the state. The original program called for $1.1 billion in issuance to fund improvements along 13 corridors; the plan has been scaled down $960 million for improvements along six corridors given higher than expected construction costs. 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, which on one hand allows for the inclusion of new program projects but also provides the flexibility to scale back the number of projects as was done in 2007.
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