Fitch Rates $51.5MM Rhode Island Econ Dev Corp. Motor Fuel Tax Bonds 'A'

NEW YORK--Oct. 3, 20031, 2003--Fitch Ratings assigns an 'A' to approximately $51.5 million Rhode Island Economic Development Corporation (RIEDC) Rhode Island Motor Fuel Tax Revenue Bonds, Series 2003A. The bonds are expected to sell through negotiation by Citigroup Global Markets, Inc. on or about November 11. The bonds mature serially from 2004-23. Other details will be determined upon negotiation. Bond proceeds will finance a portion of the construction for certain high priority transportation projects pursuant to a statutory plan of finance, provide for a debt service reserve fund and pay the cost of issuance.

The 'A' rating reflects the good legal protections governing the program, including the legislatively dedicated 2 cents of the state's motor fuel tax that secure the bonds and the statutory cap on total debt and debt service. The pledged revenues are subject to state appropriation and there are covenants to include such amounts in the state budget. Once appropriated, pledged revenues are remitted to the trustee according to the payment agreement executed by key officials in the administration. Two other series of state motor fuel tax revenue bonds are expected to be sold in 2006 and 2008 to coincide with project construction. Although pledged revenues are stable, the additional bonds test of 1.25 times (x) maximum annual debt service (MADS) is lenient. Coverage from dedicated revenue is narrow and based on historical revenues is at the test. Retention of residual funds for program purposes provides some offset. For the bonds now offered and planned issuance up to the full $125 million authorization, projected coverage is around 1.4x to 1.75x. There are provisions for a debt service reserve fund equal to 50% of MADS and an additional 50% held in a residual reserve. Upon release from either reserve, surplus funds may be used for debt service and pay-as-you-go project costs.

In 2003, the general assembly authorized the $660.5 million program act to finance five priority projects and provided for issuance of bonds payable from federal transportation funds and state matching motor fuel tax revenue bonds. The motor fuel tax bonds provide the state's approximately 20% share of the projects to be financed. These bonds are separately secured from the grant anticipation bonds which are providing the remaining 80%. The first such bonds, repayable from federal transportation funds, are being issued concurrently. The five projects being constructed are critical to the state transportation program and are part of the approved multi-year transportation improvement program for the Rhode Island Department of Transportation (RIDOT).

The state imposes a 30 cent per gallon motor fuel tax, yielding $138.8 million in fiscal 2003, or equal to $4.6 million per penny. Since 1994, motor fuel taxes are credited to the Intermodal Surface Transportation Fund (ISTF). Motor fuel taxes are legislatively allocated to RIDOT, to the state general fund, the department of elderly affairs for elderly transportation and for public transportation. Since 1999, the state has increased RIDOT's share to 20.75 cents including the 2 cents for this program.

The RIEDC, which was established by the general assembly with a distinct legal existence from the state, is empowered to issue bonds and make proceeds available to various borrowers in the state, including RIDOT. The program act and RIEDC's enabling legislation authorize it to issue the motor fuel tax revenues bonds and the grant anticipation bonds. RIDOT is responsible for the construction, maintenance of nearly all state roads, bridges and transportation facilities and administers the state and federal highway construction assistance programs.