Fitch Rates Texas DOT's GO Mobility Multi-Modal Bank Bonds 'AAA'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'AAA' long-term rating to bank bonds associated with $150 million in Texas Transportation Commission (TTC) State of Texas mobility fund bonds, series 2006-B (multi-modal bonds).

In addition, on Dec. 7, 2016, Fitch will revise the basis of the 'F1+' short-term rating on the bonds to reflect self-liquidity of the State of Texas provided by the Texas Comptroller of Public Accounts (CPA).

The assignment of the long-term bank bond rating and expected revision of the basis of the short-term rating are in conjunction with the expected substitution, on Dec. 7, 2016, of the existing liquidity facility with one between the TTC and CPA. Until that date, the short-term 'F1+' rating reflects the liquidity facility provided by the California Public Employees Retirement System and State Street Bank and Trust Company.

The Rating Outlook is Stable for the long-term rating.

SECURITY

The multi-modal bonds are general obligations of the State of Texas to which it pledges its full faith and credit. Additionally, under a standby liquidity agreement, Texas' Comptroller of Public Accounts commits to purchase unsold obligations from state cash resources.

KEY RATING DRIVERS

AMPLE LIQUIDITY FOR VARIABLE OBLIGATIONS: The State of Texas treasury fund assets managed by the CPA are sizable and more than sufficient to support the liquidity needs of variable rate bonds and CP notes that are not remarketed. The treasury fund is invested conservatively, with approximately two-thirds of its portfolio invested in short-term treasury, agency or other securities. Coverage of maximum potential liquidity needs is ample.

STATE CREDIT QUALITY STRONG: The state's long-term credit quality is reflected in its 'AAA' Issuer Default Rating (IDR), which is based on its low debt burden, conservative financial operations and an economy that continues to grow at a solid pace despite the current energy sector slowdown.

RATING SENSITIVITIES

ADEQUACY OF CASH RESOURCES: The rating is sensitive to the continued adequacy of cash resources managed by the comptroller and available to support the liquidity needs of the obligations.

CREDIT PROFILE

The 'F1+' short-term rating to be assigned to the bonds upon expected substitution will be based on the liquidity support provided by the State of Texas to certain variable rate bond and CP programs of various state agencies. Under separate series liquidity agreements between the issuing agency and the CPA, cash resources of the state treasury fund are made available to purchase maturing bonds and notes that are not successfully remarketed.

As of Oct. 31, 2016, the state had total liquidity commitments of $901 million, with a maximum daily commitment of $541 million; commitments include 365 days of interest at the maximum rate. A total of $532 million was outstanding under all of the programs.

The market value of the treasury portfolio was $22.8 billion as of Oct. 31, 2016. Portfolio assets are invested conservatively, with $2.9 billion in cash, repos and bank deposits, and another $977 million in U.S. treasury securities. Commercial paper totaled about $7.3 billion. The weighted average maturity of the treasury portfolio was 1.37 years.

Coverage of liquidity commitments by treasury fund assets remains ample. As of Oct. 31, 2016, treasury fund assets would cover the maximum liquidity commitment under existing programs by 24.9x, and the maximum daily commitment would be covered 41.4x. Coverage remains ample even after applying varying discounts to assets classes with less liquidity, as per Fitch's criteria titled 'Rating U.S. Public Finance Short-Term Debt' (November 2015).

The bonds continue to carry the long-term 'AAA' rating based on the state's GO pledge.

Based on a review of the terms governing the bank bonds, it is Fitch's opinion that the incremental risk associated with bank bonds does not have a material impact on the long-term credit rating of the State of Texas.

Texas' long-term 'AAA' IDR reflects an economy that continues to grow despite the severe contraction in the state's globally important energy sector, its conservative financial operations and low long-term liability burden. The oil price plunge that began in late 2014 interrupted a long period of economic and revenue growth, but diversification over time leaves the state better positioned relative to past cycles to weather the energy sector downturn.

For additional information on the GO rating of the State of Texas, please see Fitch's press release dated Sept. 23, 2016, 'Fitch Rates Texas Transportation $600MM Highway GO Bonds 'AAA'; Outlook Stable' which is available at 'www.fitchratings.com'.

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

Date of Relevant Rating Committee: April 27, 2016

Applicable Criteria

U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)

https://www.fitchratings.com/site/re/879478

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015223

Endorsement Policy

https://www.fitchratings.com/regulatory

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Fitch Ratings
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Source: Fitch Ratings

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