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Fitch Rates Oklahoma's $14MM ODFA Bonds 'AA'; Outlook StableNEW YORK --(Business Wire)-- Fitch Ratings assigns an 'AA' rating to the following Oklahoma Development Finance Authority (ODFA), Oklahoma State System of Higher Education, master equipment lease revenue bond issues (subject to annual appropriation) of the state of Oklahoma: --$11.23 million tax-exempt series 2014C; --$2.73 million federally taxable series 2014D. The bonds are expected to sell via negotiation on or about Dec. 2, 2014. 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 bonds 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 OPERATIONS: The state's financial operations are conservatively managed, including maintenance of separate rainy day (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: The state's commodity-based economy, based on oil and gas production as well as various agricultural products, has exhibited solid growth since the recession with unemployment rates well below the national average. Differing from the post-recession trends, the current decline in oil prices, if they continue long term, would have a negative impact on employment in this sector. Reduced production would also reduce severance taxes collected from this sector. 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 approriation of lease payments in support of the master equipment program, and 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, with a maximum term of 20 years; lease payments are not abatable. The current offering will provide for equipment purchases for six state colleges or universities. 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 2015 operating fund appropriation for the State Regents is $988.5 million, identical to the budget appropriation for fiscal 2014. The stable appropriation is a positive for the State Regents as most other state agencies' appropriations were decreased by 5.5% in fiscal 2015, incorporating a reduced level of expected revenues for that year. 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 rainy day and cash reserve funds. The state has demonstrated a willingness and ability to address fiscal challenges including revenue underperformance through the recession. 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 $19MM ODFA Bonds 'AA'; Outlook Stable,' dated Oct. 28, 2014 and available on Fitch's website at fitchratings.com. Additional information is available at 'www.fitchratings.com'. In addition to the sources of information identified in Fitch's report '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 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015 U.S. State Government Tax-Supported Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=926955 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. |
