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Fitch Rates Veterans' Housing Assistance Program (Texas) Fund II Bank Bonds Series 2006C 'AA+'
NEW YORK-(Business Wire)-October 3, 2008 - Fitch Ratings has assigned a long-term underlying rating of 'AA+' to bank bonds corresponding to variable rate demand obligations (VRDOs) issued by the State of Texas (general obligation bonds) Veterans' Housing Assistance Program Fund II refunding bonds (taxable) series 2006C.
The 'AA+' rating is based on the general obligation (GO) rating assigned by Fitch to the State of Texas. The Rating Outlook is Stable. The variable rate component of the Texas Veterans loan program represents approximately 14% of net tax supported state debt. Fitch believes that the state's interest rate risk is low given sufficient available reserves to accommodate any increased interest requirements in the near term. There is no term-out risk for these bank bonds.
The 'AA+' GO bond rating reflects the state's low debt and conservative financial operations and an economy that has expanded and diversified. Financial pressures arise from the demand that rapid growth places on the state's consumption-based tax system, as well as from property tax relief, transportation needs and other state obligations. Although resolved for the fiscal years (FY) 2008-2009 biennium, the general fund remains sensitive to longer-term funding shortfalls of property tax relief in the form of increased state funding for school finance. State finances are strong, and revenue collections through the first half of the biennium were well ahead of projection. The economic and financial impact of Hurricane Ike, which struck the state earlier in September, remains unknown. Through Sept. 30, 2008, the first month of fiscal 2009, and revenues were $153 million, or 1.4%, above estimate, led by sales and oil and natural gas tax receipts. The economy continues to expand, with employment up 2.3% in August 2008 compared to August 2007. The Stable Rating Outlook reflects the state's strong economic and revenue growth and satisfactory balances.
For more information on Texas' general credit please Fitch's research report on the State of Texas, dated Sept. 9, 2008, available on the Fitch Ratings web site at www.fitchratings.com.
Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this underlying rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework').
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.
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