Standard & Poor's Ratings Services said Monday it raised to AA-plus from AA its rating on Vermont's series 2010 special infrastructure bonds.
The outlook is stable.
Standard & Poor's also has assigned a AA-plus rating to Vermont's series 2012A special obligation transportation infrastructure bonds.
"The upgrade reflects strengthened debt service coverage," said Standard & Poor's credit analyst Henry Henderson. While estimated pledged revenues cover debt service on the new bonds and the 2010 issue 10x, coverage is expected to be significantly diluted after a projected issuance of $97.3 million of debt. However, officials indicate an intention to limit debt issuance so as to maintain coverage at no less than 3x, which S&P views as a strong level.
The rating reflects the: broad-based, statewide nature of motor fuel tax revenues; strong maximum annual debt service (MADS) coverage; and good legal provisions, including an additional bonds test of 2x MADS and a fully funded debt service reserve.
Somewhat offsetting these strengths is our assumption that there will be additional debt issuance, and the susceptibility of the pledged revenue stream to economic conditions and changes in fuel prices.
The bonds are secured under a trust indenture by pledged revenues consisting primarily of 2% of the retail price per gallon of regular gasoline -- excluding state and federal taxes -- and a three-cent per gallon tax on diesel fuel.
State statutes prevent the pledged tax rates from being reduced while the revenue bonds are outstanding.
These specific pledged revenues have only been authorized since 2009, but the state has been collecting other gasoline and diesel fuels taxes for a significantly longer period.
The gasoline portion of the pledged revenues accounts for about 90% of total pledged revenues.