Fitch downgrades $537 million Vermont Municipal Bond Bank general resolution bonds to ‘AA’

first_imgSource: Fitch Ratings CHICAGO–(BUSINESS WIRE)– 11.17.2010 Fitch Ratings assigns an ‘AA’ rating to the following 2010 Vermont Municipal Bond Bank bonds, issued under the 1988 General Resolution:–$24,280,000 (federally taxable recovery zone economic development bonds) series 5.The bonds are expected to sell via negotiation during the week of Nov. 15, 2010.In addition, Fitch downgrades $536,855,000 in outstanding general resolution bonds to ‘AA’ from ‘AAA’.The Rating Outlook is Stable.RATING RATIONALE:–The rating downgrade is due to the program cash flows failure to pass Fitch’s ‘AAA’ stress test.–The program’s pledged reserves and loan repayments, excluding federal subsidies, allow the bonds to withstand borrower defaults of up to 20.3% for four years without causing an interruption in bond payments. This is consistent with Fitch’s criteria for assigning an ‘AA’ rating given the loan pool’s borrowers’ credit quality, size and diversification.–The program, which consists of 298 borrowers, is diverse with low single-borrower concentration.–The program’s loan security is strong, with approximately 98% of all loans backed by a general obligation pledge and additional protection from borrower defaults through a state-aid intercept mechanism.KEY RATING DRIVERS:–Fitch will continue to evaluate the bond bank’s ability to balance future leveraging with program resources to maintain borrower default tolerance levels that pass Fitch’s ‘AA’ stress test scenarios.–Credit quality of the bonds is linked to repayment performance on the program’s loan portfolio.SECURITY:Program bonds are secured by borrower loan repayments and debt service reserve funds. A state moral obligation on the reserve fund and a state-aid intercept provision for borrowers provide additional credit enhancement.CREDIT SUMMARY:Established in 1970, The Vermont Municipal Bond Bank (VMBB) is a quasi-state agency. It is administered by a five-member board consisting of four gubernatorial appointees and the state treasurer. The bond bank issues bonds and uses the proceeds to make loans to local government borrowers throughout the state. Virtually all of Vermont’s eligible municipalities use the bond bank as their primary borrowing vehicle because it offers local government borrowers the lowest cost of capital.The loan pool consists of 298 borrowers from cities, towns, counties, school districts and other local governments throughout the state. Approximately 98% of all loans are backed by a general obligation pledge; the remaining are backed by utility pledges from four borrowers. About 51% of the loans are to school districts, which are further backed by an intercept mechanism that includes any state funds payable to borrowers. State aid is reportedly over 90% of school district debt service. The loan portfolio’s largest borrower, Springfield School District, comprises only 5% of the portfolio. The top 10 borrowers account for 33% of the total outstanding loan balance.Fitch analyzed the default tolerance of the VMBB loan pool using a stress test it also applies to state revolving funds and other municipal loan pools. The stress test considers loan quality, single risk concentration, reserve fund size, and debt service requirements. Due to the already tight margins on the program’s stressed cash flows, with the issuance of the 2010 series 5 bonds, the program cash flows fail to pass Fitch’s ‘AAA’ stress test by $4.4 million and $2 million in 2014 and 2027, respectively; this scenario assumes that no scheduled federal debt service subsidies are received. Per its report ‘Build America Bonds Broaden Municipal Market — Credit Considerations’ dated April 27, 2010, Fitch assesses the ability of the issuer to pay full interest on the BABs, regardless of the subsidy. While Fitch believes there could be offsets to some annual subsidy payments, it believes that VMBB management would take action to address the reasons for the offset and avoid multiple years with no subsidy, including the use of certain optional redemption provisions for its federally subsidized bonds. Even if the federal subsidies were considered in Fitch’s analysis, the stressed cash flows would still miss Fitch’s ‘AAA’ test by $1.3 million in 2014. Nevertheless, the program’s pledged reserves and loan repayments, excluding the federal subsidies, allow the bonds to withstand borrower defaults of up to 20.3% for four years without causing an interruption in bond payments. This is consistent with Fitch’s criteria for assigning an ‘AA’ rating given the loan pool’s borrowers’ credit quality, size and diversification.The debt service reserve fund, which is sized at the least of maximum annual debt service, 125% average annual debt service, or 10% of bond proceeds, is funded with bond proceeds and invested in U.S. treasury and agency securities. Pledged reserves currently total $51.3 million, or 9.5% of bonds outstanding. In addition, the bank currently maintains approximately $10.9 million in unrestricted general fund reserves, which are not pledged to bondholders but may be used if a deficiency occurs. The bonds are also supported by a state moral obligation to replenish the debt service reserve fund if it falls below its minimum specified level. Neither the intercept nor the moral obligation has ever been utilized, because no borrower has defaulted on a loan repayment since the bond bank began operations in 1970.Loan payments are due 15 days before the bond payment dates. Under Vermont’s state intercept provision, if a borrower fails to make its scheduled loan repayment, the bond bank will certify the failure of that payment with the state treasurer. The state treasurer would then pay the defaulted loan amount to the bank’s trustee from amounts appropriated and payable by the state to the defaulted borrower, if available. If sufficient state aid is unavailable, it will be paid from subsequent interceptable state aid payments, with bond bank reserves covering the temporary shortfall. To date, this mechanism has not been tested as there have not been any loan defaults in the history of the program.Additional information is available at www.fitchratings.com(link is external).Applicable Criteria and Related Research:–‘Revenue-Supported Rating Criteria’ (Oct. 8, 2010);–‘State Revolving Fund and Municipal Loan Pool Rating Guidelines’ (April 28, 2008);–‘Build America Bonds Broaden Municipal Market – Credit Considerations’ (April 27, 2010).For information on Build America Bonds, visit www.fitchratings.com/BABs(link is external).Applicable Criteria and Related Research:State Revolving Fund and Municipal Loan Pool Rating Guidelineshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=3…(link is external)Revenue-Supported Rating Criteriahttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=5…(link is external)Build America Bonds Broaden Municipal Market — Credit Considerationshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=5…(link is external)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. last_img read more

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Jokowi asks for prioritization of state spending on domestic products in Q3

first_imgPresident Joko “Jokowi” Widodo reiterated his instruction to the Cabinet members to accelerate government spending to restore the national economy, asking them to prioritize spending on domestic products in the third quarter of 2020.“We should put the brakes on spending overseas. Buy, shop and get our own products, so it can trigger the economy and spur our growth,” the President said in a limited Cabinet meeting at the State Palace in Jakarta on Tuesday.Jokowi said as an example that the Defense Ministry should prioritize spending in state-owned companies such as aircraft manufacturer PT Dirgantara Indonesia, weapons manufacturer Pindad and shipbuilder PT PAL Indonesia.He said Indonesia was now able to produce much of the medical equipment needed to handle COVID-19 domestically, including medical substances, polymerase chain reaction (PCR) test kits, rapid test kits and personal protective equipment (PPE).Read also: Work faster, think smarter, Jokowi tells Cabinet“Don’t spend anything outside, let alone masks, which we produce a lot of. We produce 17 million units of PPE per month, compared to 4 to 5 million units that we actually use,” Jokowi said.The President hoped his Cabinet could accelerate state spending with simpler procedures, especially those with big budgets, such as the Defense Ministry, the Social Affairs Ministry and the National Police.“I am now monitoring ministries’ spending on a daily basis — by what percentage it increases. The third quarter is key. Once it can leverage the growth, the fourth quarter will be easier and next year will also be easier,” he said.Closing his instruction, the President reminded his Cabinet to work above and beyond to meet the needs of the wider community, stressing that distribution of stimulus packages must be accelerated.“Don’t assume that we are in a mediocre situation. I see that social assistance has been good, but economic stimulus to both small-to-medium and big businesses and that in the health sector need to be improved,” he said.Topics :last_img read more

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