CHICAGO — Minnesota is offering $350 million of its high-grade state revolving paper in a competitive sale set for Tuesday.
Ahead of the issue, all three major rating agencies affirmed their triple-A ratings on the bonds being issued through the Minnesota Public Facilities Authority. Public Financial Management Inc. is advising the authority and Gilmore & Bell PC is bond counsel.
The sale includes $247 million in a new money series to finance drinking water and clean water loans for projects across the state with a final maturity in 2036. A second series for $103 million will refund outstanding bonds. The state has about $800 million in SRF bonds. Bond proceeds and recycled funds are combined with federal grants and a state matching requirement to provide low-cost loans.
The subordinate bonds are secured primarily by remaining loan repayments after payment on senior lien obligations. The senior lien bonds include the clean water revolving fund revenue bonds and drinking water revenue bonds issued before 2010 under two prior resolutions. The authority consolidated the clean water and drinking water bond programs in 2010.
In addition to loan repayments, senior lien bonds are secured by debt service reserve funds, operating accounts and revenue accounts. The subordinate lien bonds are secured by releases from the DSRFs and the operating accounts not needed for senior lien obligations.
Fitch Ratings said the credit benefits a quality borrowing pool with about 80% of borrowers "exhibiting investment-grade ratings."
The pool has average diversity with the highly rated Twin Cities Metropolitan Council accounting for a high 32%. "The council's very strong credit attributes mitigate any large single-obligor risk," Fitch says.
Due to the strength of the financial structure, cash-flow modeling demonstrates that the program can meet pay bond debt service even with hypothetical loan defaults of 100% over the first, middle and last four years of the program's life. That level exceeds Fitch's stress hurdle for a top rating.
Moody's Investors Service said its stable outlook "reflects our continued expectation that the credit strength of the portfolio, program asset-to-debt ratio and default tolerance will remain strong and consistent with the current Aaa rating."
A significant deterioration in debt service coverage or the program default tolerance or the average portfolio credit quality could lead to a downgrade.
