Fitch to Confirm Indiana Fin Auth Liquidity Backed Bonds at 'F1+'; Affirms Lease Bonds at 'AA'
NEW YORK-(Business Wire)-September 29, 2009 - Fitch Ratings has affirmed the 'AA' rating on the Indiana Finance Authority's (the authority) $666,525,000 lease appropriation bonds (Stadium Project), series 2005A, 2007A, and 2008A and $120,000,000 lease appropriation bonds (Convention Center Expansion Project), series 2008A as well as bank bonds corresponding to all four series. The Rating Outlook is Stable.
The Authority plans to remarket all series with new liquidity facilities on Oct. 8, 2009. On that date, Fitch will confirm the short-term 'F1+' rating on the $55 million series 2008A stadium bonds and $60 million subseries 2008A-2 convention center bonds based on the commitment of the Authority, contained in supplemental indentures, to purchase bonds bearing interest at a daily or weekly rate that are tendered for purchase for which remarketing proceeds are insufficient. Fitch expects that these bonds will bear interest at a weekly rate. The short-term 'F1+' ratings on the subseries 2005A-1, 2005A-2, 2005A-3, 2005A-4, 2005A-5, 2007A-1, 2007A-2, and 2007A-3 stadium bonds and the subseries 2008A-1 convention center bonds will be rated on or about the liquidity substitution date based on liquidity support in the form of substitute standby bond purchase agreements with JPMorgan Chase Bank, National Association, Barclays Bank PLC, The Bank of Nova Scotia, and The Bank of New York Mellon. Based on a review of the interest rates, cure periods and amortization schedules governing bank bonds specified in the substitute standby bond purchase agreements, it is Fitch's opinion that the incremental risk associated with bank bonds does not have a material impact on the long-term credit rating.
The long-term 'AA' rating is based on the state's solid lease/appropriation credit, the importance of the projects to the state, and the lease provisions. The Authority has issued about $1 billion in lease appropriation bonds to fund construction of a new 63,000-seat stadium in downtown Indianapolis where the Indianapolis Colts National Football League franchise plays and related convention center expansion. Ultimately, the security for the bonds rests with biennial state lease appropriations of rental payments that commence upon project completion, although the state expects that earmarked tax revenues and other funds will be sufficient to pay debt service and general fund revenues will not be necessary. During the construction period the state provides a reserve fund deficiency make-up. The stadium project was completed on schedule in August 2008, and the convention center expansion is expected to be completed in December 2010.
The short-term 'F1+' ratings will expire on Feb. 1, 2035 for the series 2008A stadium bonds and Feb. 1, 2039 for the subseries 2008A-2 convention center bonds; the term of these commitments matches the scheduled maturity date of the bonds. The supplemental indentures for the stadium and convention center projects provide for the payment of the purchase price by the Authority of tendered 2008A stadium bonds and 2008A-2 convention center bonds during the daily and weekly rate modes in the event the proceeds of a remarketing of the bonds following a tender are insufficient to pay the purchase price. The commitments are sized to provide for the entire principal amount of the respective series plus interest coverage of 37 days calculated at a maximum interest rate of 12%. Funds designated by the Authority for the commitments, the spending of which is entirely at the discretion of the authority, provide ample liquidity; the timing mechanisms detailed in the supplemental indentures allow for timely payment in the event of a failed remarketing; and investment holdings and investment policies are appropriate for the commitments.
The state's credit is characterized by a historical pattern of low debt, strong reserve levels, and balanced financial operations. These strengths are offset by an economy that, despite diversification, remains heavily concentrated in manufacturing, particularly transportation equipment. The state has seen accelerating economic weakening in the current downturn and has recorded year-over-year job loss in every month since March 2008, with steep losses in the manufacturing and construction sectors. August 2009 employment was 5.6% below that of August 2008, compared to a 4.4% drop for the U.S., and the state's August 2009 unemployment rate of 9.9% was above the national rate. Indiana's economic exposure could pressure the state's financial position going forward; however, the state addressed significantly lowered revenue forecasts in fiscal 2009 without drawing on reserves and is expected to continue to maintain substantial balances in the current biennium. Indiana does not issue general obligation debt, which is constitutionally prohibited. The state meets the bulk of its capital needs through debt issuance by the authority secured by biennial state lease-rental appropriations.
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.
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 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.
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