Virginia (Commonwealth of) -- Moody's assigns Aa1 to Virginia's Transportation Capital Projects Revenue and Refunding Bonds, Series 2022; outlook stable

Rating Action: Moody's assigns Aa1 to Virginia's Transportation Capital Projects Revenue and Refunding Bonds, Series 2022; outlook stableGlobal Credit Research - 20 Jan 2022New York, January 20, 2022 -- Moody's Investors Service has assigned a Aa1 rating to the Commonwealth of Virginia's $252.5 million Transportation Capital Projects Revenue and Refunding Bonds, Series 2022, to be issued through the Virginia Commonwealth Transportation Board (CTB). The bonds are expected to price February 8. The outlook is stable.RATINGS RATIONALEThe Aa1 rating reflects the obligation of the Commonwealth of Virginia (Aaa stable) to make payments from funds appropriated by the General Assembly. Payment on the bonds rests with the continued willingness of the commonwealth to make payments in amounts sufficient to meet debt service requirements as they come due. The one-notch distinction in the rating from the commonwealth's general obligation rating incorporates the essential nature of the projects financed by the bonds and the moderately strong legal structure, including the risk of non-appropriation.RATING OUTLOOKThe bonds carry the stable outlook of the Commonwealth of Virginia. Virginia's stable outlook is based on healthy revenue performance and structurally balanced operations that will continue as a result of the commonwealth's strong governance and financial management structure.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING- Given that the bonds are rated based on the state's Aaa rating and notched once off the state's rating due to the risk of non-appropriation, an upgrade is unlikely.FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING- A downgrade of the Commonwealth of Virginia's rating- Non-appropriation of needed funds for debt serviceLEGAL SECURITYPayment on the bonds rests with the commonwealth's continued willingness to appropriate sufficient funds to meet debt service requirements. Pursuant to a payment agreement, CTB, the state treasury board, and the state secretary of finance are obligated to use their best efforts to have the governor include sufficient appropriations in each budget for payment of CTB debt service and have the General Assembly appropriate the amounts requested by the governor.Debt service on the bonds is expected to be appropriated first from the Priority Transportation Fund (PTF), a special non-reverting fund within the Transportation Trust Fund (TTF). Until fiscal 2021 the PTF received defined amounts of insurance taxes, motor fuels taxes and investment income. Going forward it will receive 10.5% of the TTF's revenues, which are a broader than the PTF's prior revenues: a portion of the state's retail sales tax, motor vehicle sales taxes, motor fuels taxes, vehicle registration fees, a portion of state recordation taxes and investment income. The PTF will also receive revenue in excess of the official forecast of allocations to the Highway Maintenance and Operating Fund and certain other smaller revenue sources.CTB has a policy to structure bond repayments so that PTF revenues alone provide at least 1.15 times coverage on Transportation Capital Projects Revenue Bonds debt service. All monies deposited into the PTF must be used for debt service first before any other expense. Remaining PTF funds stay in the fund after designated expenditures are paid.Including all debt supported by the TTF (the transportation capital projects bonds, certain other specific program bonds and GARVEEs) minimum debt service coverage is projected to be a healthy 4.9 times. The commonwealth also has the flexibility to transfer or allocate from other appropriated funds, as necessary, including monies from the General Fund.USE OF PROCEEDSProceeds of the bonds will be used to refund outstanding transportation capital bonds for savings and to help finance various transportation projects around the state.PROFILEVirginia is the twelfth largest state by population (8.6 million people in 2020) and the thirteenth largest state by GDP ($551.8 billion in 2020 current dollars). The Commonwealth Transportation Board (CTB) was created in 1950 and is responsible for policies regarding Virginia's highway system and transportation needs. CTB is governed by a 17-member board comprised of the state Secretary of Transportation, the Commissioner of Highways, the director of the Department of Rail and Public Transportation and 14 appointments by the governor. CTB governs the Virginia Department of Transportation (VDOT), an agency of the state.METHODOLOGYThe principal methodology used in this rating was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments Methodology published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1298498. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.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.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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. 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