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Wisconsin (State of) -- Moody's assigns Aa2 to $32.8 million Wisconsin COPs

·14 min read

Rating Action: Moody's assigns Aa2 to $32.8 million Wisconsin COPsGlobal Credit Research - 08 Feb 2021New York, February 08, 2021 -- Moody's Investors Service has assigned a Aa2 rating to the $32.8 million State of Wisconsin Master Lease Certificates of Participation of 2021, Series A. The COPs are expected to price on or about the week of February 22. The outlook is stable.RATINGS RATIONALEThe Aa2 rating is one notch off of off the state's Aa1 general obligation rating to reflect the requirement for annual appropriation of debt service by the state legislature. The rating reflects the strength provided by significant incentives, such as cross-collateralization, that mitigate non-appropriation risk by the state.The state's Aa1 general obligation rating reflects a well-funded pension system and limited OPEB liability, a recent history of moderate but steady economic growth, conservatively managed budgets and adequate liquidity. The state's low fixed costs - despite Wisconsin's slightly elevated debt levels - outweigh the credit challenge of the state's negative unassigned fund balances and relatively small reserves.RATING OUTLOOKThe outlook for Wisconsin is stable. We expect that the state will continue its prudent budget management practices, enabling the state to weather the current economic downturn without significant impact on its credit profile.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING- Established trend of recurring structural budget balance reflected in an elimination of negative unassigned GAAP fund balance- Funding and maintenance of the budget stabilization fund to a level sufficient to provide a meaningful financial cushion in times of revenue volatility- More robust positive economic and demographic trendsFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING- Departure from prudent fiscal management practices that have aligned spending with the state's moderate economic growth- Return to structural budget imbalance and reliance on significant non-recurring measures to address budget gap- Significant deterioration of the state's financial position resulting in weakening of liquidity or larger GAAP-negative fund balancesLEGAL SECURITYThe master lease COPs represent a proportionate interest in lease payments to be made by the state under the master lease. The obligation of the state to make payments is absolute and unconditional, not subject to abatement, although subject to legislative appropriation.The master lease COPs and the security interest on the leased items are cross-collateralized to reduce non-appropriation risk. Non-appropriation for a single lease schedule would be an event of default for all series of master lease COPs.Under Wisconsin law, an existing appropriation continues in effect until it is amended or repealed. If a budget is not in effect at the start of a fiscal year, the prior year's budget serves as the current fiscal year budget until a new one is enacted. The annual appropriation in the second year of the state's biennial budget for debt service on the bonds is the greater of required debt service that year, or the first year of the next biennium. This appropriation requirement, combined with the continuing authority of existing appropriations until a new budget is adopted helps protect against the effect of a delay in the adoption of a budget.USE OF PROCEEDSProceeds of the Master Lease Certificates of Participation of 2021, Series A are being used to refund maturities of outstanding COPs, fund lease schedules previously financed through a short-term, variable rate revolving credit facility and pay the costs of issuance. The purpose of the Master Lease COPs program is to provide funding for equipment and various statewide technology initiatives.PROFILEWisconsin is a north-central state, bordered by Minnesota, Iowa, Illinois and Michigan, as well as Lake Superior and Lake Michigan. Wisconsin is the twentieth largest state, with a population of 5.8 million. Its GDP ranks twenty-first among states at $347.3 billion.METHODOLOGYThe principal methodology used in this rating was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1260202. 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.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. Joshua Grundleger 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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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