S&P Global Ratings said it lowered its rating on the state of New Mexico's $717.8 million parity senior-lien severance tax bonds to AA-minus from AA, and lowered its rating on the state's $122.5 million New Mexico subordinate supplemental severance tax bonds to A-plus from AA-minus.
"The downgrades follow what we believe are a significant drop in New Mexico oil and gas prices that we expect will lead to a material decline in severance tax debt service coverage by pledged revenue for the foreseeable future," said S&P Global Ratings credit analyst David Hitchcock.
The outlook on all bonds is stable, reflecting its belief that debt service coverage (DSC) will remain good, if reduced, following expected declines in severance taxes this year.
At the same time, S&P assigned its AA-minus long-term rating and stable outlook to New Mexico's series 2016A severance tax bonds, series 2016B severance tax refunding bonds, and series 2016C taxable severance tax bonds.
A lien on money deposited into the severance tax bonding fund, including net tax receipts generated from natural gas, oil, and other severed natural resources in New Mexico, secures the senior severance tax bonds. The supplemental severance tax bonds are secured by a second lien on pledged revenues, after payment of senior debt service.
