Bangkok--16 Nov--Standard & Poor's
Standard & Poor's Ratings Services assigned its 'AA' long-term rating to New Mexico's series 2010D severance tax refunding bonds. At the same time, Standard & Poor's affirmed its 'AA' long-term and underlying ratings (SPUR) on the state's parity severance tax bonds and 'AA-' rating on the state's subordinate supplemental severance tax bonds. The outlook is stable.
The ratings reflect what we view as the state's:
Strong coverage by estimated fiscal 2010 severance tax revenues of 3.1x senior maximum annual debt service (MADS) and 2.5x total senior and supplemental bond MADS;
Good bond provisions, including an additional bonds test (ABT) that requires at least 2x debt service coverage (DSC) on the senior bonds and 1.6x DSC on the subordinate long-term supplemental bonds; andRapid debt amortization, with all principal to be retired by 2021.
In our opinion, mitigating these credit strengths are:
The inherent instability associated with natural gas and oil prices and production levels, which account for the bulk of pledged revenues; and
The state's geographic limitations in serving natural gas markets.
"The stable outlook reflects our expectation that despite additional bond plans, a strong ABT provides some protection against dilution of MADS coverage or moderate decline in revenues," said Standard & Poor's credit analyst. "We also expect natural gas and oil reserves will continue to be replenished to maintain sufficient production over the bonds' life and severance tax collections will continue to provide good MADS coverage during the bonds' relatively short 10-year life despite recent declines. The volatility of the pledged revenue somewhat limits upward movement of the rating," Ms. Corson added.
A lien on money deposited into the severance tax bonding fund, including net tax receipts generated from natural gas and oil and other severed natural resources in New Mexico, secures the senior severance tax bonds. Bond proceeds will be used to refund a portion of the series 2006A and 2007A severance tax bonds. Before this refunding, the state had $700.8 million in senior severance tax bonds parity debt. New Mexico also has $126 million of supplemental severance tax bonds secured by a second lien on pledged revenues.
RELATED CRITERIA AND RESEARCH
USPF Criteria: Special Tax Bonds, June 13, 2007
Complete ratings information is available to RatingsDirect subscribers on the Global Credit Portal at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
Ana Sandoval, New York (1) 212-438-5095,
[email protected]
Analyst Contacts:
Sussan Corson, New York (1) 212-438-2014
Gabriel Petek, CFA, San Francisco (1) 415-371-5042