Bangkok--14 Oct--Standard & Poor's
Standard & Poor's Ratings Services assigned its 'AA' long-term rating to Hawaii's series 2009DT, DU, DV, and DW general obligation (GO) refunding bonds and $32 million series 2009DS taxable GO bonds (qualified school construction bonds, or QSCBs -- tax credit bonds). At the same time, Standard & Poor's assigned its 'AA-' rating to Hawaii's $40.12 million series 2009A certificates of participation (COPs) (State Office Buildings), and affirmed its 'AA' rating and underlying rating (SPUR) on the state's outstanding GO bonds. The outlook is stable.
"The rating is based on the state's well-established, proactive budget monitoring practices and willingness to implement aggressive solutions to balance the fiscal 2010-2011 biennial budget in light of lower general fund tax revenue forecasts," said Standard & Poor's credit analyst Paul Dyson. "Moreover, although the national economic downturn continues and recovery is expected to be slow, various economic metrics indicate Hawaii has fared better than most states during the recession: Its unemployment has remained relatively low, its mortgage exposure is limited, and there are signs that tourism trends are stabilizing and federal funding is increasing."
The series DT, DU, DV, and DW GO refunding bonds are being issued to refund various outstanding GO bonds, with an estimated $25 million in present value savings, and $137 million in savings being taken upfront in fiscals 2010 and 2011 for budgetary relief (already included in the state's forecast). This will result in higher debt service in some future years and lower debt service in others, although the possibility for restructuring future debt exists. The series DS GO bonds are tax credit bonds being issued on a taxable basis as QSCBs, and expenditure of series DS proceeds is limited to school facilities under the code. These instruments provide a tax credit to investors in lieu of a regular interest coupon, thereby providing for a federal subsidy to the state for the cost of this debt. Hawaii's share of the total national authorization of QSCBs of $11 billion is $32.058 million, and proceeds are expected to be spent within three years of issuance. The COPs are being issued to refund the state's 1998A and 2000A COPs to achieve savings (present value savings $3.2 million).
The stable outlook reflects our view that Hawaii's proactive budget management techniques will result in manageable out-year gaps that state officials will successfully resolve without a significant impact to reserve designations. The way in which the state manages its budget over the 2010-2011 biennium, a period characterized by a challenging revenue environment, will be critical to maintaining its current rating, particularly in light of what we consider to be optimistic revenue growth assumptions. In our opinion, the state's level of reserves provides us with credit comfort at the current rating level. If actual revenue growth is significantly below the state's projections or if the state is unable to further reduce spending, negative pressure on the rating could result.
RELATED RESEARCH
USPF Criteria: "GO Debt," Oct. 12, 2006
USPF Criteria: "Appropriation-Backed Obligations," June 13, 2007
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Media Contact:
Ana Sandoval, New York (1) 212-438-5095, [email protected]
Analyst Contacts:
Paul Dyson, San Francisco (1) 415-371-5079
Gabriel Petek, CFA, San Francisco (1) 415-371-5042
Key Contacts:
Americas Media Relations: (1) 212-438-6667
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Americas Customer Service: (1) 212-438-7280
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