2008-07-11 23:06:07 -
- Fitch Ratings has assigned an 'F1+' rating to the State of Colorado's (the state) $215,000,000 education loan tax and revenue anticipation notes (ETRANs) series 2008A. The notes will be sold competitively on July 15 and mature Aug. 7, 2009.
The 'F1+' rating reflects ETRANs strong security, payable from individual school districts' loan repayments and by the state treasurer's
covenant to use its substantial resources to purchase any defaulted loans. The program's structural features are strong, with a sizable share of the loans made to districts with good credit quality.
Note proceeds will be used to make interest-free loans to qualifying school districts to ease their cash flow. The loan program is managed by the state treasurer, and includes safeguards that protect credit quality and prevent borrowing abuses. The program includes eligibility requirements, monitoring, verification of cash shortages, and enforcement measures to minimize non-payment risk.
This borrowing is the first of a two-part issuance, with a parity note issuance in December 2008 of up to $321 million. The par size will depend on the outcome of several measures likely to be voted on by the individual districts' residents in November. Several of the participating districts are borrowing higher amounts than in prior years, resulting from a change in the state education funding statute that freezes property tax rates for many districts, thereby increasing the share of education funding coming from property taxes rather than state funding. Litigation pending before the Colorado Supreme Court challenges the constitutionality of the funding statue revision, with a lower court ruling that it was unconstitutional. Reversal of the funding law, if it occurs, will not impact credit quality, but will affect the total borrowing amount.
Each district covenants to repay its loan by remitting property taxes received after March 1, 2008 one day after receipt. Interest will be pre-funded from state general fund resources at closing. The districts are expected to borrow from 3%-82% of their tax levy through the two note issues, with the higher amounts borrowed by the largest districts. The state expects 23 districts to participate in this program.
All district loan repayments are due by June 25, 2009, well in advance of the notes' Aug. 7 maturity. Any non-payment on June 25 constitutes default by the district, and the loan begins bearing interest. If, on June 26, the amount in the loan repayment account together with the pre-funded interest account is not sufficient to fully pay the ETRANs, the state treasurer covenants to provide the shortfall amount using any funds in her custody available for investment. The state has considerable resources available for such investment, including the State Education and Highway Funds, which are not available for borrowing to repay the state's own cash flow notes. These funds combined are estimated to total $1.5 billion on June 30, 2008, with the combined total projected to reach $1.74 billion on June 30, 2009. Funds that could be used to repay $350 million in Colorado's general fund tax and revenue anticipation notes (GTRANs) also are available on a subordinate basis if the two funds cited above are not sufficient. These other funds are projected to total $2.78 billion at June 30, 2009.
The four largest participating school districts are expected make up 83% of the total borrowings. These districts are among largest in the state and have good credit quality. Of the remaining districts, only one represents more than 5%.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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 Ratings
Amy S. Doppelt, +1-415-732-5612 (San Francisco)
Janet Martin, +1-212-908-0507 (New York)
Christopher Kimble, +1-212-908-0226
(Media Relations, New York)
