CHICAGO -- Fitch Ratings Wednesday downgraded $41 million of highway improvement bonds issued by Ohio’s Butler County Transportation Improvement District amid declining debt service coverage levels.

Fitch lowered its rating two notches to BBB-plus from A, and revised the outlook to stable from negative at the lower rating.

The transportation district was created in 1993 to improve transportation in Butler County, in the southwest corner of the state.

The bonds, issued in 2007 to finance a new highway interchange, are payable from three tax increment financing districts located near the interchange. The debt also features a secondary pledge of 25% of non-tax revenues in the county’s general fund, and 95% of income tax revenues available to Liberty Township from the Joint Economic Development District.

The downgrade reflects falling maximum annual debt service coverage from the combined revenue sources, according to Fitch. In addition, debt service has consisted only of interest payments until this year, when it begins to increase, analyst Stephen Friday said in the downgrade report.

“The legal structure for the TIF revenue is strong, requiring retention of revenue for future debt service if available,” Friday wrote. “However, the structure of the secondary pledge provides only marginal additional security for bondholders.” TIF revenues in 2012 would cover only 0.94 times maximum annual debt service, which occurs in 2031. “Nominal growth would therefore be needed for TIF revenue to fully support debt service,” Friday said. 

The county’s non-tax revenues have dropped 52% since 2008. “As debt service is ascending, this trend represents a considerable risk,” Fitch said.

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