Fitch Rates Oklahoma's $45MM ODFA Bonds 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AA' rating to $44.54 million state of Oklahoma, Oklahoma Development Finance Authority (ODFA) Oklahoma state system of higher education, master real property lease revenue bonds series 2015A (subject to annual appropriation).

The bonds are expected to sell via negotiation on or about July 8 and 9, 2015.

The Rating Outlook is Stable.

SECURITY

The bonds are limited special obligations of the ODFA secured by annual appropriations of the state of Oklahoma. The intended source of repayment on the obligations is the state board of regents for higher education on behalf of certain Oklahoma colleges and universities from their annual budget allocations.

KEY RATING DRIVERS

APPROPRIATION MECHANISM: The rating on the ODFA bonds, backed by Oklahoma's annual legislative appropriation pledge, is one notch below the state's 'AA+' general obligation (GO) bond rating. This reflects the state's general credit standing, sound lease structure, and statutory authorization for these types of bonds.

CONSERVATIVE FINANCIAL MECHANISMS: The state's financial operations benefit from the maintenance of separate rainy day (RDF; the constitutional reserve) and cash flow reserve funds and a policy of appropriating only 95% of expected revenues. The limited appropriation of revenues provides a cushion for the variability in the state's revenue sources, particularly the cyclical collections of severance tax revenue.

CONCENTRATED ECONOMIC BASE: Growth in the state's commodity-based economy, based on oil and natural gas production as well as various agricultural products, has slowed as a result of the current low oil price environment. While unemployment rates through May 2015 remained low and below national averages, the rate over the past two months has escalated and payrolls have declined as the natural resources slowdown has been incorporated.

MANAGEABLE LIABILITY POSITION: Debt levels are low, and tax-supported debt is amortized relatively quickly. Several rounds of pension reform have improved the state's long-term liability position, with the combined burden of debt and pensions slightly above the state median. Most new debt issuance is in the form of lease revenue bonds.

RATING SENSITIVITIES

The rating is sensitive to shifts in the state's GO rating to which it is linked.

CREDIT PROFILE

The ODFA bonds currently offered are secured by lease rental payments by the State Regents from state general fund revenues, subject to annual legislative appropriation. ODFA is one of the principal financing agencies of the state. Both the state constitution and enabling statutes provide for appropriation of lease payments in support of the master equipment program. Additionally, the master leasing structure on behalf of the State Regents has been validated by the Oklahoma state supreme court.

The terms of the leases extend through the life of the bonds; the maximum lease term permitted by the ODFA is 30 years and lease payments are not abatable. The current offering will refund two outstanding leases issued by ODFA for higher education institutions in the state and provide funding to refinance debt issued by a local authority for student housing at Langston University.

All higher education appropriations to the State Regents are consolidated, with the State Regents authorized to allocate funds first to payment of lease rentals of each participating institution. The State Regents covenant to include a budget request for lease payments sufficient to pay debt service for these bonds. The fiscal 2016 operating fund appropriation for the State Regents is $963.4 million; a 3.5% reduction from the fiscal 2015 appropriation, enacted as part of state's plan to close an identified $611 million revenue shortfall in that fiscal year. Despite the appropriation reduction, Fitch believes the state remains committed to funding its higher education institutions.

The state's 'AA+' GO bond rating and Stable Outlook reflect low debt levels and disciplined financial policies. This includes an appropriation limit of 95% of certified general fund revenues, close monitoring of revenue results, and provisions to maintain separate RDF and cash reserve funds. The state expects to use a portion of the RDF to fund budgetary expenditures in fiscal 2016 in addition to other one-time actions, including fund sweeps. Despite these actions, Fitch believes financial operations continue to benefit from disciplined financial policies. Tax rate adjustments are limited by a supermajority requirement of the legislature or voter referendum to raise tax rates.

For additional information on the state of Oklahoma, please see 'Fitch Rates Oklahoma's $10MM ODFA Bonds 'AA'; Outlook Stable' dated June 8, 2015 and available at www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Tax-Supported Rating Criteria (pub. 14 Aug 2012)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. State Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

Additional Disclosures

Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987004

Endorsement Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150625006354/en/

Fitch Ratings
Primary Analyst:
Marcy Block, +1-212-908-0239
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Karen Krop, +1-212-908-0661
Senior Director
or
Committee Chairperson:
Laura Porter, +1-212-908-0575
Managing Director
or
Sandro Scenga, +1-212-908-0278
Media Relations, New York
[email protected]

Source: Fitch Ratings

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