|[April 29, 2014]
Fitch Rates CHESLA State-Supported Rev Bonds 'AA-'; Outlook Negative
NEW YORK --(Business Wire)--
Fitch Ratings assigns an 'AA-' rating to the following Connecticut
Higher Education Supplemental Loan Authority (CHESLA):
--$23 million CHESLA state supported revenue bonds (CHESLA Loan
Program), 2014 series A.
The bonds are expected to sell via negotiated sale on May 7.
In addition, Fitch affirms the ratings on outstanding parity bonds of
CHESLA issued under the 1990 resolution.
The Rating Outlook is revised to Negative from Stable.
State supported revenue bonds issued under the 1990 resolution are
special obligations of the authority secured by education loan
repayments and a special capital reserve fund (SCRF) equal to maximum
annual debt service (MADS). In the event of a draw on the fund, the
state deems appropriated from its general fund an amount necessary to
replenish the SCRF.
KEY RATING DRIVERS
RATING LINKED TO STATE GO: The 'AA-' rating on bonds carrying a SCRF,
including CHESLA's 1990 resolution bonds, reflect the state's pledge to
fund the SCRF without requiring further legislative approval. Thus SCRF
bonds' credit quality is linked to the state's 'AA' general obligation
NEGATIVE OUTLOOK BASED ON (News - Alert) BUDGET VULNERABILITY: The Negative Outlook on
the SCRF bonds, as with the state's own GO bonds, reflect the state's
reduced fiscal flexibility at a time of lingering economic and revenue
uncertainty. The adopted budget for the current biennium relied on
one-time items and anticipated little near-term progress in rebuilding
fiscal flexibility. Recent revenue momentum, if it continues, may allow
the state to materially improve its reserve position.
HIGH WEALTH LEVELS: Connecticut is the nation's wealthiest state as
measured by per capita personal income. Economic recovery has been slow
and uneven since the recession, and the state's large and important
finance sector continues to weaken.
CYCLICAL REVENUES AND SPENDING PRESSURE: State revenue performance is
cyclical, while high fixed costs limit its ability to respond during
HISTORICAL WILLINGNESS TO BUILD BALANCES: During past economic
recoveries the state has demonstrated a willingness and ability to
rapidly repay deficit borrowing and rebuild its rainy day balance. The
current slow recovery has hampered rebuilding of reserves in the current
HIGH DEBT: Tax-supported debt is high for a U.S. state. Most GO bonds,
excluding GO bonds issued to fund the teachers' retirement system,
SIGNIFICANT PENSION OBLIGATIONS: Unfunded liabilities for employees are
significant, including for state employee and teacher pensions. The
state fully funds actuarially calculated pension contributions and
maintains a fixed amortization date. Additionally, the state has taken
steps to reform retirement pension and health liabilities.
RATING LINKED TO STAE CREDIT QUALITY: The rating is sensitive to
changes in the state's GO bond rating, to which this rating is linked.
The 'AA-' rating on bonds carrying a SCRF reflects the 'AA' rated GO
credit quality of the State of Connecticut. The SCRF mechanism is a
longstanding means for the state to provide additional security for
various state authorities and municipalities on a contingent basis.
Approximately $3.6 billion in debt is outstanding carrying SCRF pledges,
issued by a range of state entities.
Use of a SCRF is legislatively authorized and overseen by the state's
treasurer. Bonds issued under CHESLA's 1990 resolution carry a SCRF
sized at MADS. In the event of a draw to cover principal or interest,
the authority covenants to certify the insufficiency to the state budget
director and treasurer, and an amount to replenish the SCRF is deemed
appropriated on or before Dec. 1 without further legislative approval.
Connecticut's GO rating, at 'AA,' reflects its vast wealth and income
resources, tempered by a comparatively high burden of debt, retirement
liabilities and other fixed costs. The Negative Outlook is based on the
state's inability in its adopted fiscal 2014-2015 budget to return to
more structurally sustainable budgeting and rebuild flexibility at a
time of unusually slow economic and revenue recovery.
The biennium budget was balanced only through a number of non-recurring
resources, including refinancing the outstanding economic recovery notes
(ERNs) that were used to fund deficits in the last recession. Improved
revenue collections in early 2014 and below budget expenditures have
materially expanded the forecast fiscal 2014 surplus, despite the
continued slow overall growth of the state's economy and uncertainty
about revenues through the remainder of the fiscal year. The governor
has proposed directing most of the forecast surplus to replenishing its
reserves and reducing liabilities, steps which Fitch believes would
improve the state's fiscal flexibility.
For further information on the State of Connecticut, please see Fitch's
press release dated March 4, 2014, 'Fitch Rates $400MM Connecticut GO
Bonds 'AA'; Outlook Negative,' at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from IHS (News - Alert) Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria
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