Rating Action: Moody's assigns Aa3 to State of Alaska's General Obligation Bonds, Series 2020A; outlook negative
Global Credit Research - 22 Jul 2020
New York, July 22, 2020 -- Moody's Investors Service has assigned a rating of Aa3 to the State of Alaska's planned issuance of $88.9 million General Obligation Bonds, Series 2020A. The outlook is negative.
The state's credit profile is supported by an ability to fund operations to a significant extent from investment earnings generated by the approximately $65 billion Alaska Permanent Fund. In recent years the state has relied increasingly on the Permanent Fund's Earnings Reserve Account (ERA) to fund its operating expenses, compensating for greatly diminished oil revenue. The state's capacity to generate available reserves held in the ERA to fund operations will offset its continued high economic and revenue vulnerability to its North Slope-based oil production industry, as well as its comparatively large unfunded pension burden.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The coronavirus crisis is not a key driver for this rating action. We do not see any material immediate credit risks for the State of Alaska. However, the situation surrounding coronavirus is rapidly evolving and the longer term impact will depend on both the severity and duration of the crisis. If our view of the credit quality of the state changes, we will update the rating and/or outlook at that time.
The state's negative outlook reflects the risk of deterioration of financial metrics or governance practices particularly if political paralysis impedes policymakers from agreeing on effective approaches to the state's key credit challenges.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING
- Demonstration of ability to fund operations from recurring resources even during economic downturns
- Reduction in unfunded pension liabilities
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING
- Persistent operating imbalances that deplete financial reserves
- Budgetary commitments that cast doubt on state's ability to use investment income to fund state operating needs
- Significant worsening of unfunded pension liability
Alaska's general obligation bonds are backed by the state's full faith, credit and resources. The bonds are issued under a constitutional provision that requires authorization by both a public vote and legislation. The authorizing legislation, called the State Transportation Bond Act, was approved by voters on November 6, 2012.
USE OF PROCEEDS
The bonds will generate estimated proceeds of $110.6 million, including premium amount. Net proceeds will be placed in the 2012 State Transportation Project Fund to help pay for a broad range of projects under the legislation. The largest projects include expansion of the Port of Anchorage, reconstruction of a portion of the Glenn Highway, and extension of Alaska Railroad Corporation rail lines connecting Matanuska-Susitna Borough to two destinations (Port MacKenzie and Bogard Road).
Although Alaska is by far the largest state in terms of area - double the size of Texas - its economy is comparatively small, ranking 46th among states based on its $55.4 billion gross domestic product (GDP) in 2019. It also is among the least populous: Alaska's 2019 population - 731,545 - ranked 48th, according to US Census Bureau estimates. The state is among the richest in natural resources, with large amounts of oil and natural gas, as well as deposits of gold, zinc, lead and copper.
The principal methodology used in this rating was US States and Territories published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1084466. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Edward Hampton Lead Analyst State Ratings Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Emily Raimes Additional Contact State Ratings JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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