Fitch Rates $55MM Indiana Fin Auth Lease Appropriation Bonds (Stadium Proj) Ser 2008A 'AA/F1+'
NEW YORK--(Business Wire)--
Fitch Ratings assigns a rating of 'AA/F1+' to $55,000,000 Indiana
Finance Authority (the authority), lease appropriation bonds (Stadium
Project), series 2008 A. Fitch also affirms at 'AA' approximately $3
billion of Indiana's appropriation debt. The Rating Outlook is Stable.
The long-term 'AA' rating and Stable Outlook on the above-cited
bonds is based on the Authority's long-term credit quality. The
short-term 'F1+' rating on the bonds is based on the liquidity support
of a standby bond purchase agreement (SBPA) provided severally by: (1)
RBS Citizens, National Association, D/B/A/ Charter One, as
administrative agent and one of the banks, whose pro rata share of the
commitment will be 54.9%; (2) JPMorgan Chase Bank, National
Association, with a 31.4% pro rata share, and (3) The Bank of New York
Mellon, with a pro rata share of 13.7% of the commitment. The
short-term rating will expire on the stated expiration date of the
SBPA, July 22, 2011, unless such date is extended, or upon any earlier
termination of the SBPA. Fitch's short-term rating expires on the
expiration or termination of the SBPA.
The SBPA provides for the payment of the purchase price of
tendered bonds during the daily rate modes and in the event the
proceeds of a remarketing of the bonds following an optional or
mandatory tender are insufficient to pay the purchase price. The SBPA
is sized to provide for the entire principal amount of the respective
series of bonds that each supports, plus interest coverage of 37 days
calculated at a maximum interest rate of 15%, based on a year of 365
days. The Bank of New York Mellon Trust Company, N.A., as trustee, is
required to give notice to the bank in the event that remarketing
proceeds are insufficient to pay the purchase price for tendered
bonds. The remarketing agent for the bonds is JPMorgan Securities Inc.
The bonds are expected to be delivered through DTC on or about July
24, 2008.
The bonds initially bear interest in the daily rate, but may also
be converted to a weekly, flexible, term, auction or fixed interest
rate mode. While the bonds bear interest in the daily rate mode,
interest will be payable on the first business day of each month,
commencing Aug. 1, 2008. Holders of bonds bearing interest in the
weekly or daily rate modes may tender their bonds for purchase upon
delivery of prior notice to the remarketing and tender agents.
Bonds are subject to a mandatory tender: (1) on each interest rate
mode change date (except between the daily and weekly rate modes); (2)
upon the expiration or earlier termination of the SBPA; (3) on any
substitution of the SBPA, and (4) in the daily and weekly rate modes,
on any business day specified in a notice from the Authority, not less
than 20 days after the trustee receives such notice. Optional and
mandatory redemption provisions also apply to the bonds pursuant to
the terms of the documents.
The 'AA' long-term rating is based on the state of Indiana's
lease/appropriation credit, the importance of the stadium and
convention center project to the state, and strength of the lease
provisions. Indiana does not issue general obligation debt, rather
meeting a bulk of its capital needs through debt issuance by the
authority, which by its creation in 2005 consolidated debt issuance
for the state. Low debt is the state's principal credit strength and,
since all debt is appropriation-backed, legislative approval is
required for projects and financings, including annual appropriation
of lease payments. The state's net tax-supported debt is just below $3
billion, which equates to a low 1.4% of estimated 2007 personal
income. While the state's Public Employees' Retirement Fund remains
nearly fully funded, the closed State Teachers' Retirement Fund, with
an unfunded actuarial liability of $10.3 billion as of June 30, 2007,
is only 45% funded. Although diversification has occurred, the state's
economy remains considerably concentrated in manufacturing, exposing
the state to economic downturns. Further, the state's improved
financial position could be pressured ultimately by the assumption of
local costs, particularly education, as part of the recently enacted
property tax reform.
In recent years, solid revenue growth enabled the state to surpass
conservative revenue estimates and build balances. Fiscal 2007 general
and property tax relief fund revenues rose 4.7% over the prior year
and the state ended the biennium with $881.5 million or nearly 7% of
revenues in combined fund balances, including the rainy day reserve.
Midway through the current biennium, state operating revenues rose
2.4% over fiscal 2007, just above estimate, on stronger than expected
personal income tax performance. The sales tax grew 2.9%. Based on
fiscal 2008 actuals, state revenues need to rise 1.8% in fiscal 2009
to meet the budget. The state anticipates ending the biennium with
combined balances of nearly $875 million, or approximately 6.5% of
operating revenues, including a rainy day fund of $376 million.
The state recently enacted legislation toward bringing broad
property tax reform to the state. Among a variety of changes under the
legislation, the state assumes the remaining costs of primary and
secondary education, in addition to other costs supported currently by
local levies, funded by a 1% statewide sales tax increase, the
retention and redirection of existing property tax relief funds, and
wagering taxes from slot machines at horse racing facilities. The
state estimates that new revenues will align closely with the assumed
costs. Local property taxes are lowered, caps are placed on future
increases, and an optional local income tax is permitted. If approved
again by the legislature next year, the property tax caps will be
considered as an amendment to the state constitution in November 2010.
Indiana's economy modestly grew out of the recessionary period
early this decade, with some diversification, although a large
manufacturing presence remains. Employment rose 0.5% in 2007, well
under the nation's 1.1% rate, was on par with Indiana's performance
over the last several years. More recently, employment declined 0.4%
year-over-year in June 2008, fairing worse then the U.S. 0.1% rate of
loss. Manufacturing earnings constituted 26% of Indiana's overall
earnings in 2007, versus 12% nationwide, and just over 18% of
employment as of June 2008. This sector is experiencing broad job
losses, particularly in primary metals and transportation equipment,
down 3.5% and 6.2%, respectively, in June 2008. State unemployment
rate rose notably to 5.8% in June 2008, above the U.S. rate of 5.5%.
The state's education and health sector rose rising 1.8% in June 2008
year-over-year. Total employment in the Indianapolis MSA, with its
more diversified base, faired better than the state and U.S., growing
0.5% over the same period.
The bonds are being issued to fund construction of a new
63,000-seat stadium where the Indianapolis Colts National Football
League franchise will play. Ultimately, the security for the bonds
rests with the biennial state lease appropriation of rental payments
due upon project completion. The state expects that earmarked tax
revenues will be sufficient to pay debt service, and general fund
revenues will not be necessary. The project is anticipated to be
completed on time in August 2008.
Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, 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 Ratings, New York
Trudy Zibit, 212-908-0689
(for information concerning the short-term rating)
Kyle Gephart, 212-908-0661
(for information concerning the Authority)
or
Media Relations:
Sandro Scenga, 212-908-0278
Copyright Business Wire 2008
