Revenue weakness and reserve draws propel another Alaska downgrade

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Alaska was downgraded by Fitch Ratings Friday.

The action changes Alaska’s issuer default rating and general obligation bond rating to AA from AA-plus, affecting approximately $777 million of state GO bonds.

The downgrade, according to Fitch, incorporates a material decline in financial resilience over the past several years as the state struggled with the economic and revenue effects of the downturn in energy markets.

“Despite significant expenditure reductions and the recent halving of the statutorily determined permanent dividend payment to residents, the state has relied on one-time resources, primarily reserve fund draws, to address large remaining revenue shortfalls, and prospects for growth in its petroleum-based operating revenue system remain constrained by the extended low price environment, which Fitch expects to continue,” the rating agency said in a news release.

"The state has applied balances in its substantial accessible reserves, principally the Constitutional Budget Reserve Fund (CBRF) and the Statutory Budget Reserve Fund (SBRF) to close budget gaps, depleting the SBRF and reducing the balance in the CBRF to a level that provides much reduced cushion," according to Fitch.

The outlook was revised to stable from negative at the new, lower rating.

Also downgraded are: approximately $243 million state appropriation bonds, to AA-minus from AA; approximately $1 billion of bond bank 2005 resolution bonds to AA-minus from AA'; approximately $144 million of bond bank 2010 and 2016 resolution bonds to A-plus from AA-minus.

The downgrade comes in connection with the upcoming pricing $28.955 million Alaska Municipal Bond Bank Authority general obligation bonds 2017 Series Three, slated for competitive sale Nov. 14. Those bonds are rated AA-minus.

Alaska had triple-A ratings across the board as recently as 2015, before its persistent budget weakness triggered a series of downgrades. Moody's Investors Service now rates Alaska Aa3, with a negative outlook, and S&P Global Ratings rates Alaska AA with a negative outlook.

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