Fitch assigns 'AA' to Vermont's special oblig transportation infrastructure bonds, outlook stable

Fitch Ratings assigns an 'AA' rating to the following State of Vermont bonds,$9.6 million special obligation transportation infrastructure bonds 2012 series A.In addition, Fitch affirms the 'AA' rating on the state's $13.3 million outstanding special obligation transportation infrastructure bonds 2010 series A.The Rating Outlook is Stable.
SECURITY
The bonds are special, limited obligations of the state, payable from Motor Fuel Transportation Infrastructure Assessments.
KEY RATING DRIVERS
--FIRST LIEN ON DEDICATED TAX REVENUE: The state of Vermont has granted to bondholders a first lien on dedicated gasoline and diesel fuel assessments. Pledged funds are segregated in the Transportation Infrastructure Bond (TIB) Fund. The expenditure of such funds is statutorily limited to debt service and, once debt service has been accumulated for the fiscal year, pay-go capital expenditures for transportation projects.
--ADEQUATE ADDITIONAL BONDS TEST: Additional leveraging of the pledged revenue stream requires 2 times (x) coverage of projected maximum annual debt service (MADS).
--SOLID PROJECTED DEBT SERVICE COVERAGE: Debt service coverage in the near term is well above the additional bonds test level. Fiscal 2012 revenues provide almost 13x coverage of MADS after this sale and 3x coverage of estimated MADS on all debt expected to be issued through fiscal 2016.
--FLEXIBILITY TO CONTROL ISSUANCE TO MAINTAIN COVERAGE: Should revenue growth be slower than projected, Fitch expects issuance would be slowed.
CREDIT PROFILE
The 'AA' rating on Vermont's special obligation transportation infrastructure bonds reflects the first lien on pledged funds, the statutory limitation on the use of pledged funds for transportation purposes, and a satisfactory 2x additional bonds test, as well as the state's careful attention to debt affordability. Since the initial sale under this credit in 2010, revenue performance has exceeded expectations. Fitch expects future debt issuance would be slowed should revenue growth lag expectations in the future.
Pledged revenues consist of a 2% assessment on the retail price (exclusive of all federal and state taxes, averaged over the preceding quarter) per gallon on motor vehicle gasoline sold in the state and a 3-cent per gallon assessment on diesel fuel sales in Vermont, with the assessment on gasoline representing about 90% of pledged revenues. In both cases, the levy is collected at the wholesale level along with other vehicle-related taxes. Both sources are relatively new, authorized and implemented in 2009 to fund transportation improvements across the state.
Assessment revenues are segregated from all other Transportation Fund revenue and TIB Fund monies can only be expended for debt service on TIB fund bonds and, once debt service has been fully provided for in a given fiscal year, pay-as-you-go capital expenditures for transportation projects. Vermont has covenanted to fulfill the terms of the Trust Agreement and will not impair the rights or remedies of bondholders. Pursuant to the TIB statute, the assessments shall not be reduced below the rates in effect at the time of issuance of the bonds until the bonds have been paid.
Based on July 2010 estimates, the state expected to receive pledged revenues totaling $18 million in fiscal 2011. Actual results totaled $18.5 million. Receipts of $22.8 million in fiscal 2012 compared to the $19.8 million expected at the time of the 2010 sale, and fiscal 2013 revenues are forecast at $23 million. MADS after the current sale is projected at $1.765 million (in fiscal 2019), rising to $7.7 million (in fiscal 2027) with expected issuance through 2016. Pursuant to the indenture, the issuance of additional bonds requires no less than 2x coverage of MADS, calculated on a historical basis, and it is the state's policy to maintain coverage of no less than 3x.
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.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=6...
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=6...
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NEW YORK--(BUSINESS WIRE)--Fitch 7.19.2012