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Idaho's GARVEE bonds rated A+

By Scott Trommer
Fitch Ratings
NEW YORK - Fitch Ratings has assigned an 'A+' rating to approximately $186.9 million Idaho Housing and Finance Association (the association) grant and revenue anticipation bonds federal highway trust fund, series 2006.

The series 2006 bonds are expected to sell through negotiation by a Citigroup-led syndicate on or about April 25.

Bond proceeds will finance a portion of the construction costs for transportation projects pursuant to the Connecting Idaho Program and pay the cost of issuance. The bonds mature serially July 15, 2007-2024. The rating outlook is "stable."

This is the first of an expected $1.2 billion issuance in grant and revenue anticipation bonds authorized by state statute enacted in 2005 to finance transportation improvements along 13 corridors. Debt service on the bonds is payable from pledged receipts consisting of all federal surface transportation funds.

A memorandum of agreement between the Federal Highway Administration (FHWA) and the Idaho Transportation Department (ITD) and a master financing agreement among the association, ITD and the Idaho Transportation Board (ITB) establish a sum sufficient payment stream for the 90 percent of debt service requirements payable from federal surface transportation funds.

Other federal surface transportation fund reimbursements received by ITD are pledged to pay the remaining 10 percent of debt service.

However, this amount may also be payable, subject to annual appropriation, from the state highway account. Pledged receipts are broadly defined under the indenture to include both federal surface transportation funds to pay debt service and all federal surface transportation fund reimbursements received by ITD to provide strong debt service coverage.

Key credit strengths include the long established track record of federal transportation funding, ITD's covenant that by the seventh business day of each new federal fiscal year it will request obligation of federal surface transportation funds for debt service and the state's continuing appropriation of all federal surface transportation funds that provides an important mitigant in the unlikely event there is a delay or a deficiency in funds obligated for debt service.

Bondholder security is sufficiently protected by the additional bonds test requirement that debt service on a current and projected basis be no more than 20 percent of ITD's federal aid apportionments through fiscal 2010 and no more than 30 percent thereafter. A risk for these bonds, similar to other bonds secured by federal surface transportation funds, is the potential for significant changes in federal transportation funding policy with each new authorization period.

Interruption in the flow of federal transportation funding is highly unlikely given the broad-based political support for the program. However, the most recent multi -year reauthorization of the federal surface transportation program was significantly delayed.
The Transportation Equity Act for the 21st Century (TEA-21) expired on Sept. 30, 2003,
without a successor multi-year authorization, although 12 short -term extensions were passed.

The Safe, Accountable, Flexible, and Efficient Transportation Equity Act - A Legacy for Users (SAFETEA-LU) took nearly two years to enact.

The 18-year maturity for this series and a similar maturity profile for expected issuances expose bondholders to additional reauthorization risk. Assuming the continued practice of six-year federal transportation authorization periods, the bonds will typically span three such periods, while similar debt programs with shorter maturities generally cover up to two authorization periods. This reauthorization risk is partially mitigated by debt service coverage of at least 2 times (x) against federal fiscal 2005 federal surface transportation funds, assuming the full $1.2 billion issuance.

ITD's SAFETEA-LU federal transportation funding level represents an approximately 25 percent increase over TEA-21 for the federal fiscal 2004-2009 period.

However, given continuing federal budget deficits and national security concerns, coupled with the possibility of changing federal priorities and/or highway trust fund resource constraints, there is no guarantee that such federal transportation funding growth will continue during subsequent reauthorization periods.

Idaho may be more susceptible to changes in federal transportation funding policy given its status as a donee state, where it receives more than $1.40 in federal surface transportation funds for each $1 the state contributes in federal motor fuel tax revenues. However, this risk is sufficiently hedged given the long-term support for the national surface transportation program and expected debt service coverage.

The Connecting Idaho Program is a critical element of the state's transportation investment strategy and involves new highway links, roadway reconstruction and other improvements along thirteen corridors. The association, which is authorized by state statue to issue the bonds, is a body politic and corporate created to assure an adequate source of capital for affordable housing and has the power to finance various facilities for nonprofit corporations.

ITD is responsible for building, preserving and operating the state transportation system.
The ITB is vested with the authority to control, supervise and administer ITD.