Mississippi GARVEE Issue Gets Fitch IBCA's Highest Rating
15 June 1999
Mississippi GARVEE Issue Gets Fitch IBCA's Highest Rating
NEW YORK--June 14, 1999--Fitch IBCA assigns its `AAA' rating to the State of Mississippi's revenue refunding bonds (Four-Lane Highway Program Issue), series 1999.This represents Fitch IBCA's highest rating to date on a state-issued Grant Anticipation Revenue Vehicle (GARVEE bond).
The $200,000,000 State of Mississippi revenue refunding bonds (Four-Lane Highway Program Issue), series 1999 are scheduled to sell competitively on June 17. The bonds mature June 1, 2000-2009, and are not subject to redemption prior to maturity.
The bonds will provide a current refunding of the $200,000,000 general obligation notes (Four-Lane Highway Program Issue), series 1998, which were issued to defray the cost of constructing a four-lane highway system that connects various areas of the state with interstate and primary highways.
The `AAA' rating reflects security from a dual source of federal highway reimbursements and dedicated state taxes, either one of which provides strong coverage for the bonds. Additional strengths include a closed lien on pledged revenues other than for subordinated bonds, the debt's medium-term maturity schedule, and a state covenant not to materially alter the imposition, collection or distribution of the dedicated taxes as long as the bonds are outstanding.
Another positive provision builds and maintains a debt service reserve fund equal to the next two debt service payments. A low risk exists that federal highway assistance will not be reauthorized beyond its current authorization, which expires in 2003. Nevertheless, this is offset by the long history of federal highway assistance to the states, past federal support for Mississippi's Four-Lane Highway Program, as well as by an ample stream of pledged state taxes.
The primary security for the bonds is federal reimbursements designated for the four-lane highway program from the federal Highway Trust Fund (HTF). If these funds are insufficient, additional security is provided by the pledge of various state fuel taxes, certain state highway funds, motor vehicle registration fees, a lubricating oil tax, and a contractor's tax on construction projects under the four-lane highway program. If both of the above sources are insufficient, the bonds are backed by any other legally available reimbursements from the federal highway program.
Unlike other state highway or transit authority programs that securitize federal transportation reimbursements for debt service, Mississippi has no intention of further leveraging this revenue stream. Therefore, high coverage levels will extend for the life of the bonds; ranging from 13.3 times (x) to 16.2x.
Projected federal reimbursements for Mississippi's Four-Lane Highway Program alone are expected to provide annual coverage of 1.1x-3.2x, varying according to the expected workflow reimbursement for the program's numerous highway projects. Federal project reimbursements and dedicated state taxes (before considering additional available federal highway monies) are expected to provide 6x-9x annual debt service coverage.
The State Treasury is directed by legislation to create the Four-Lane Highway Trust Fund, which will have two accounts -- a debt service reserve fund and a debt service fund. Deposits will continue from pledged revenues until the Debt Service Reserve Fund is equal to the next two debt service payments.
Prior to the debt service payment date, the required amount is transferred from the debt service reserve account to the debt service account. The treasurer then has up to 60 days to replenish the debt service reserve account for the next two debt service payments. When pledged revenues are not needed by the debt service reserve account, they are available to the Mississippi Department of Transportation (MDOT) for any lawful purpose.