Press Release|Public Finance

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

21 Jun 2024   |   New York

Contacts

KBRA affirms the long-term rating of AAA with a Stable Outlook for the Commonwealth of Massachusetts (the “Commonwealth”) Special Obligation Revenue Bonds (Unemployment Insurance Trust Fund). The Bonds are limited obligations of the Commonwealth, secured by a pledge of special bond contributions assessed on all covered employers in the Commonwealth. Pledged funds are generated from a mandatory charge (the “COVID-19 Recovery Assessment”) on experience-rated private, contributory employers in Massachusetts, which represent a broad and diverse assessment base.

Key Credit Considerations

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

Credit Positives

  • Broad pledge 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.

Methodologies

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1004857

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