CHICAGO - Kroll Bond Rating Agency gave Wisconsin its AAA rating for its transportation revenue bond credit ahead of a nearly $400 million sale slated for Thursday.
Fitch Ratings, Moody's Investors Service, and Standard & Poor's all rate the bonds in the mid- to high-double-A category. While several buy-side market participants said additional analysis can't hurt, they don't expect Kroll's higher rating to impact the bonds' pricing.
"Not yet," said Thomas Spalding, senior investment officer at Nuveen Investments. The market wants to see Kroll "rate more issues in the municipal space so their ratings can be compared and contrasted with the traditional rating agencies," he said.
"A rating request was submitted to Kroll because, in this credit environment, a new perspective and a fresh set of eyes are highly valued," said state capital finance director Kevin Taylor. "Kroll provides exceptional analysis, and we are pleased with the very strong assessment of the Transportation Revenue Bond credit quality."
The state last year asked Kroll to rate its general obligation bonds.
Jefferies is the senior manager for the transportation revenue bonds.
Siebert Brandford Shank & Co. LLC is co-senior with another four firms rounding out the syndicate. Robert W. Baird & Co. is advising the state and Quarles & Brady LLP is bond counsel.
The deal has two tranches. The $310 million 2014 Series 1 includes $270 million of new money to finance transportation facilities and highway projects. It also includes $40 million of current refunding bonds. The new money matures in 20 years with an eight-year call feature. The 2015 Series 1 for $83 million is a forward delivery of refunding bonds.
The new-money proceeds will fund various transportation facilities and highway projects and the refunding pieces are for present value savings. After the sale, the state will have $2 billion of transportation revenue bonds outstanding.
The bonds are secured by a first claim on vehicle registration fees and other vehicle registration-related fees including vehicle title transaction fees, registration and title counter service fees, and personalized license plate issuance and renewal fees.
Kroll's rating - based on its special tax rating methodology published in 2012 - reflects very strong coverage of more than three times maximum annual debt service in fiscal 2013 and a strong test that precludes additional issuance without maintaining 2.25 times coverage on the first lien.
The credit also benefits from a structure supported by a state covenant to charge sufficient vehicle registration fees and registration-related fees to cover debt repayment. Vehicle registration fees make up more than 80% of the program's income.
"The stable outlook reflects KBRA's expectation that MADS coverage on the state's first lien transportation revenue bonds will remain high and that the state will continue to monitor pledged revenues and the Legislature will make adjustments, as necessary, to maintain funding levels," Kroll's report read.
Kroll's primary credit concern is a lack of consistent growth of the pledged revenues over the last five years. A history of consistent declines in pledged revenues or a significant decline in MADS coverage levels could lead to a downgrade.
The state intends to eliminate a debt service reserve requirement but Kroll said "in light of the breadth of the revenue base and high debt service coverage" it views "the lack of a reserve requirement to be reasonable."
Moody's affirmed its Aa2 saying its rating "reflects the long stable trend of pledged revenues and conservative debt structure. The state has a proven track record of increasing fees when necessary and active program management." Moody's describes the narrow source of pledged revenues as a challenge.
Fitch and Standard & Poor's affirmed their AA-plus ratings. "We expect that pledged revenue will continue to provide debt service coverage we consider strong," said Standard & Poor's analyst Gabriel Petek. "In addition, the program's pledged revenue stream is stable, and the state has strong oversight of the transportation capital program."
Fitch said the rating benefits from a stable revenue source with ample coverage ratios. Forecast annual growth in pledged revenues is modest and well under historical averages and future transportation borrowing could narrow coverage.
The state increased the automobile registration fee $20, to $75, and the title transaction fee $24.50, to $69.50 in 2008. Registration fee revenues have flattened out in recent years.. They rose by 3.2 % in fiscal 2012, then declined less than 1 % in fiscal 2013, and are projected to grow by 2.2% this year.
