Nov 16 - Fitch Ratings affirms the 'AAA' assigned to the bank bonds
corresponding to Nassau County Interim Finance Authority, NY's (NIFA)
$123,185,000 sales tax secured variable rate bonds, series 2008D-1.
Fitch also affirms approximately $1.6 billion of NIFA sales tax secured revenue
bonds at 'AAA'
The Rating Outlook is Stable.
On Nov. 21, 2012 (the substitution date), NIFA and the Bank of New York Mellon
(the bank) will enter into an agreement pursuant to which the bank will enter
into a standby bond purchase agreement with respect to the series 2008D-1 bonds,
in substitution of the existing liquidity facility with Bank of America, N.A.
The bonds will be subject to mandatory tender on the substitution date.
Pursuant to the NIFA Act (the Act), the bonds are supported by a first perfected
security interest in sales tax revenues derived in Nassau County.
KEY RATING DRIVERS
EXCEPTIONAL LEGAL PROTECTIONS: NIFA is a bankruptcy-remote, statutorily defined
issuer. The tight legal framework includes a first perfected security interest
in Nassau County's (the county) sales tax revenue.
STRONG COVERAGE TO CONTINUE: Debt service coverage levels are strong, and no
additional debt is authorized.
ECONOMICALLY SOUND REVENUE STREAM: The tax base from which pledged revenues are
drawn is strong and diverse, although inherently sensitive to economic cycles.
BANK BOND PROVISIONS NEUTRAL: Fitch has reviewed the term-out provisions under
the standby bond purchase agreement between NIFA and the bank and does not
believe they affect NIFA's credit quality.
EXCEPTIONALLY STRONG LEGAL FRAMEWORK
The long-term 'AAA' rating incorporates elements of both municipal and
structured finance credit analysis. NIFA is a bankruptcy-remote issuer, and the
bond structure grants a first perfected security interest in the county's 4.25%
local sales tax less the 0.25% currently required to be paid to towns and cities
and the up to 0.083% authorized to be allocated to villages. The state collects
sales tax revenues and distributes them to the state comptroller, who then pays
the revenues directly to the bond trustee. The county receives residual revenues
monthly after appropriate transfers for the payment of NIFA's debt service and
operating requirements. Fitch rates the county's general obligation bonds 'A+'
with a Negative Outlook.
NIFA was created by the Act as a public benefit corporation by the state of New
York in June 2000 and was empowered to provide oversight for the county. The Act
allowed the NIFA to issue debt for county purposes, including restructuring of
outstanding county debt. Under the Act NIFA has no further debt authorization,
so the only potential threats to current strong coverage are declines in county
sales tax revenue and changes to the tax structure. Fitch believes the former is
mitigated by the strength and diversity of the county's tax base. While pledged
revenue has been somewhat variable, Fitch believes a deterioration of a
magnitude that would have a meaningful impact on debt service coverage is highly
unlikely. While the county and state both have the unilateral ability to alter
the tax structure, Fitch believes this risk is negligible due both to the
potential impact on bond security and the county's reliance on residual revenue
for its operations.
SOUND DEBT STRUCTURE AND COVERAGE
Debt service coverage remains strong; coverage of maximum annual debt service
(MADS) by 2011 revenue was 4.62x. Annual debt service begins to decline in 2014,
so coverage is anticipated to strengthen over time. All NIFA bonds mature by
2025. Sales tax revenues were up 5.2% in 2010 and 2.2% in 2011. On a cash basis,
sales tax revenues for the nine months through September 2012, are up 5.9% from
the same time period in 2011.
About 39% of currently outstanding bonds are variable rate demand obligations
(VRDOs), swapped to fixed rate, with diverse counterparties. NIFA's access to
liquidity support is evidenced by a number of recent substitutions of expiring
standby bond purchase agreements with three-year agreements.
Bank bond provisions under the standby bond purchase agreement between NIFA and
the Bank of New York Mellon would result in accelerated amortization of the
series 2008D-1 bonds at an elevated interest rate. However, Fitch believes the
terms are not overly onerous (five-year amortization at a rate of 4 - 5% above
the highest of a number of market-based rates). Further, the par amount of the
series 2008D-1 bonds is modest relative to overall debt, liquidity providers for
NIFA's VRDOs are varied and unlikely to trigger multiple term outs at once, and
Fitch believes that NIFA has the market access needed to limit the risk that
these term-out provisions pose.
SOUND COUNTY ECONOMIC POSITION
Nassau County, located on Long Island just east of New York City, has a broad,
diverse economy and well above-average economic indicators including high income
levels (medium household income in 2010 was 180% of the nation's), well
below-average unemployment (6.7% in 2011), and high per capita market value
($162,000 as of 2011)despite recent tax base declines. A somewhat strained
housing market is indicated by elevated foreclosure levels and stagnant average
As a fully built-out county, new development has been limited, although some
redevelopment is in the planning stages. The effects of the economic downturn
were milder than in some areas; employment and home price declines have been
relatively moderate and sales tax revenue, the county's largest source of
general government funding, has been relatively stable.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's Tax-Supported
Rating Criteria, this action was additionally informed by information from
Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index,
IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria