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Fitch Rates Florida Department of Transportation State Infrastructure Bank's $61.7MM Bonds 'AA-'

Posted on: Monday, 25 June 2007, 18:12 CDT

Fitch Ratings assigns an 'AA-' rating to the approximately $61.7 million State of Florida Department of Transportation State Infrastructure Bank (SIB) Revenue Bonds Series 2007A, and affirms the 'AA-' rating on approximately $62.3 million in outstanding parity bonds. The Rating Outlook is Stable.

The bonds are expected to sell as early as June 26, 2007, on a negotiated basis through a syndicate led by Merrill Lynch & Co. Bond proceeds will be used to make loans to eligible borrowers for the financing of qualified transportation projects, to fund a debt service reserve fund, and for the cost of issuance.

Bonds secured by the SIB's master resolution are backed on a parity basis by bond and equity funded loans to 15 different borrowers including: the Miami-Dade County, Tampa-Hillsborough County, and Orlando-Orange County Expressway authorities; the Ft. Lauderdale/Hollywood International Airport; the cities of Jacksonville, Orlando and Tallahassee; Collier, Miami-Dade and Volusia counties; the Central and South Florida Regional Transportation authorities; to three Florida Department of Transportation (FDOT) district offices; and to the ports of Jacksonville, and Manatee County. A reserve for all parity debt, funded by bond proceeds at the least of 10% of par outstanding, 1.0 times (x) maximum annual debt service, or 1.25x average annual debt service is available to make up for shortfalls that could potentially occur due to any missed repayments. Upon issuance of the bonds, the reserve fund will contain approximately $9.0 million, or 7.4% of outstanding par.

The pool has moderate single-borrower concentration, with the largest obligor, FDOT, representing 27% of the total outstanding loan portfolio. This concentration is likely to continue, even as the number of borrowers in the pool expands, although this is down from 38% in 2005. As of this issuance, approximately 27% of the outstanding loans will be backed by State appropriations, 22% by toll revenues from mature expressway systems, 22% from local option sales taxes, 12% from non-add valorem revenues, 8% from port revenues, 4% from airport passenger facilities charges, and 3% from pledges of Federal Transit Administration grants. All but one of the borrowers in the pool is publicly rated by Fitch Ratings, and over 98% of the pledged loan revenue is of investment grade quality. Additional bonds can be issued if projected coverage is at least 1.2x.

Loans are made from a combination of equity provided by FDOT, recycled funds, and from bond proceeds. Since 2001, approximately $279 million in equity has been provided to the SIB, with $20 million expected to be provided in fiscal 2007-2008, and an additional $20 million on an annual basis is expected thereafter. At this point in time, a total of approximately $668 million in loan commitments have been made, with $259 million in disbursements. Unlike most pooled financing transactions that fund loans and issue debt simultaneously, SIB loans are entered into and partial disbursements are made prior to debt issuance and receipt of anticipated equity contributions. Assuming the current loans and an additional $75 million in annual commitments to be awarded through 2014, the SIB is expected to make $1.2 billion in loan commitments, of which $397 million will have come from bond proceeds and $180 million from additional state contributions.

Loan agreements are standardized, with loans preferably being secured by a senior lien pledge. Subordinate lien pledges will be accepted, but only if the senior lien is rated 'BBB' or better. At this point in time, all but five of the loans are backed by subordinate lien pledges. SIB loan applications are generally accepted once a year, with some exceptions. Loan approval is based on a number of factors, including the perceived transportation benefits provided by the project, the interest rate proposed by the borrower, and the portion of the project funded from other sources. SIB loans should not be used to fund the entire cost of a project, and would only be made for initial right-of-way and other start-up costs if repayment is not dependent upon project completion. In addition, borrowers agree to submit audits 45 days after the delivery of the audit report is delivered, and audits shall be conducted within 90 days of the end of the borrower's fiscal year. Borrowers will also submit semi-annual progress reports on program and financial activities and agree to provide FDOT with access to the project site, and to all records related to the project.

Fitch analyzed the default tolerance of the SIB's portfolio using a stress test that considers credit quality, single-risk concentration, collateralization level, debt service requirements, and historical default rates. The SIB's over-collateralization currently provides debt service coverage in excess of 1.7x in all years, assuming full funding of the $1.2 billion in loan commitments. Debt service coverage levels could drop to the extent that additional borrowing is needed to fund any shortfall in state capital contributions but in Fitch's view not to a point below the loan default tolerance required for the current bond rating level.

The SIB was created in June of 2000 with the enactment of Section 339.55, Florida Statutes. Pursuant to that section, FDOT may provide loans and credit enhancements to governmental units and private entities for use in constructing and improving qualified transportation facilities. Such transportation facilities must be on the State Highway System or provide for increased mobility on the State's transportation system or provide intermodal connectivity with airports, seaports, rail facilities, and other transportation terminals for the movement of people and goods. FDOT may use the proceeds of bonds to finance qualified projects under the SIB through the funding of loans that are reasonably executed or are expected to be executed within 90 days after the issuance of such Bonds.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.

Source: Business Wire

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