Press Release|Public Finance

KBRA Affirms AAA Rating with Stable Outlook for Commonwealth of Massachusetts Special Obligation Revenue Bonds (Unemployment Insurance Trust Fund)

23 Jun 2023   |   New York


KBRA affirms the long-term rating of AAA with a Stable Outlook for the Commonwealth of Massachusetts Special Obligation Revenue Bonds (Unemployment Insurance Trust Fund).

Key Credit Considerations

The rating was affirmed because of the following key credit considerations:

Credit Positives

  • Broad pledged derived from a sizable and diverse wage base, with an unlimited rate re-set annually while bonds are outstanding to provide at least 1.25x debt service in the following year, plus administrative charges.
  • Strong legal framework and collection processes supporting solid collection rates.
  • A structure that allows for the early retirement of debt, thus reducing the overall burden and potentially shortening the maturity of the obligations.

Credit Challenges

  • The pledged revenue base is subject to economic volatility, with collections directly tied to Commonwealth-wide employment levels, as evidenced by instances of YoY revenue declines realized in three of the past 15 years.
  • The on-time collection rate for unemployment taxes is also somewhat cyclically sensitive contributing to uncertainty in determination of the COVID-19 Recovery Assessment rate each year needed to generate covenanted debt service coverage.

Rating Sensitivities

For Upgrade

  • Not applicable for the current rating level.

For Downgrade

  • A material reduction in debt service coverage levels.
  • A material spike in Commonwealth unemployment levels and associated benefit filings, necessitating a protracted depletion in UITF resources.

To access rating and relevant documents, click here.


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