NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'F1+' rating to the District of Columbia's $675 million fiscal year 2012 general obligation (GO) tax revenue anticipation notes (TRANs).
The TRANs are scheduled to be offered competitively on Oct. 16, 2012 and will mature on Sept. 30, 2013.
The TRANS are general obligations of the District, with its full faith and credit pledged.
KEY RATING DRIVERS
GO PLEDGE OF DISTRICT: The TRANs are GOs of the District, payable from any source of receipts not otherwise legally committed.
SATISFACTORY COVERAGE BY PROJECTED CASH FLOWS: Projected cash flow provides satisfactory coverage of note repayment, and balances in various reserve funds provide substantial additional cushion. Revenue performance is monitored to ensure necessary funds are available for repayment
ADDITIONAL LIQUIDITY: The District covenants to seek a U.S. Treasury advance if necessary to cover TRAN debt service.
STRONG GO: The District GOs are rated 'AA-' by Fitch, reflecting the District's consistently strong financial performance, sizeable reserves, and high resident wealth levels.
The District of Columbia is a regular TRAN issuer, in part to manage the cash flow impact of receipt of property taxes in the second half of the fiscal year. Most sources of receipts are spread fairly evenly throughout the year, but property taxes, which make up 20% of projected fiscal 2013 receipts, are received in March, April, and September. The 'F1+' rating reflects satisfactory coverage of note repayment on the payment date, sound legal provisions, and available borrowable reserves. The rating also considers the District's sound financial management.
The $675 million in note proceeds represents approximately 6.9% of expected fiscal 2013 cash receipts in the district's operating accounts, which include the general, capital projects, and federal and private resources funds. The size of the borrowing is smaller than in fiscal 2012, reflecting an improved cash position. Coverage of principal and interest at maturity by projected general fund and reserve cash balances is expected to be sound at 2.4x. The cash flow forecast projects an ending cash balance of $408 million in the general fund and $512 million in additional reserves, including federally required reserves and district designated reserves.
The TRANs are GOs of the district, payable from any source of receipts not otherwise legally committed. The TRANs, therefore, do not benefit from the security of the special real property tax that is set aside for repayment of GO bonds, and the district's income tax secured revenue bonds have a superior lien on dedicated personal income and business franchise tax revenues. The district is required to deposit funds for TRAN repayment in an escrow fund on three dates in September, prior to the Sept. 30 maturity: 20% of principal on Sept. 1, 2013, 60% of principal on Sept. 20, 2013, and the remaining 20% of principal plus accrued interest on Sept. 27, 2013.
The TRANs Act and the escrow agreement require the chief financial officer (CFO) to review monthly cash flow projections before Aug. 16, 2012 and Sept. 16, 2012. If the CFO determines that TRAN principal and interest will equal or exceed 85% of estimated amounts to be received after such dates but before the repayment date, the CFO is required to deposit into the escrow account receipts received by the district that are not otherwise legally committed until the amount on deposit in the TRANs escrow account equals at least 100% of the repayment amount. If sufficient funds are not available in the escrow account in a timely manner at maturity, the CFO must deposit the amount required for repayment no later than one business day before payment is due. Further, the District may seek a U.S. Treasury advance if necessary to cover TRAN debt service.
Fiscal 2012 preliminary cash flow performance largely met expectation with a higher beginning cash balance providing significant cushion throughout the year. The revenue forecast was raised $240 million over the course of the year and adjustments were made to expenditures through supplemental appropriation. The ending cash balance is now projected to be $386.7 million with an additional $511 million in reserves.
Additional information is available at 'www.fitchratings.com' . The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', Aug. 14, 2012.
--'U.S. State Government Tax-Supported Rating Criteria', Aug. 14, 2012.
--'Rating Municipal Short-Term Debt', Dec. 8, 2011.
Applicable Criteria and Related Research:
Rating U.S. Municipal Short-Term Debt
U.S. State Government Tax-Supported Rating Criteria
Tax-Supported Rating Criteria
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Source: Fitch Ratings