LOS ANGELES -- Nevada received mixed ratings ahead of plans to sell $300 million in highway revenue improvement and refunding bonds competitively.
The bonds received Aa2, AA-plus and AAA ratings from Moody's Investors Service, Fitch Ratings and Standard & Poor's, respectively, on the sale planned for Feb. 17.
All gave stable outlooks and affirmed similar ratings on the state's $441 million in outstanding state highway revenue bonds.
"The stable outlook reflects our view of the state bonds' strong debt service coverage and our expectation of stable, albeit gradual, pledged revenue growth," S&P credit analyst Sussan Corson said.
The Series 2016 bonds will fund highway improvements and refund outstanding parity debt. Roughly $200 million of bond proceeds will fund the $900 million Project NEON, which will increase capacity of a section of I-15 in Las Vegas and is expected to be completed in 2020.
Fitch cited the bonds strong legal provisions with statewide motor vehicle fuel taxes constitutionally dedicated for highway purposes as well as federal reimbursements in its Feb. 4 ratings report. The bonds are further protected by an additional bonds test that has been raised with this issuance to 3 times maximum annual debt service, excluding federal reimbursements, Fitch said.
S&P highlighted the same strengths listed in the Fitch report, and lauded what analysts called a "well-run program" that has historically captured additional available federal funding and maintains a comprehensive capital planning process."
"Given the strong debt coverage, legal provisions and relative inelasticity of demand for motor fuel, we do not expect to lower the rating through at least the two year outlook," Corson and S&P Analyst Gabriel Petek said in the Feb. 4 ratings report. "That said, were the state to leverage the program significantly more than its current forecast suggests, it could result in downward ratings pressure."
Moody's said its' Aa2 rating takes into account the 3-times debt service coverage, but also an increasing debt load combined with a relatively long 30-year maximum authorized maturity for the highway revenue bonds. Moody's noted expected weakness in gas tax revenues over the long-term from increasing fuel efficiency.
The state has a 17.6 cents per-gallon tax on gas and 27 cents per-gallon tax on special fuels, including diesel. Revenues experienced 2.9% year-over-year growth in 2015, but remained below the $297 million generated in 2007, Fitch said.
"The volatility inherent in a tax based on consumption is mitigated by the strong debt service coverage on the bonds and Nevada's pledge not to impair revenues," Fitch said in its ratings report.
The risks from exposure to reduced use due to price increases, use restrictions, or economic weakness, are mitigated by the relatively broad nature of the statewide motor fuel tax, demonstrated sound debt service coverage and the state's pledge not to impair revenues, Fitch said.
