KBRA Assigns AA Rating, Stable Outlook to State of Alaska General Obligation Refunding Bonds; Affirms Ratings for Related Bonds
25 Jul 2024 | New York
KBRA assigns a long-term rating of AA to the State of Alaska General Obligation Refunding Bonds, Series 2024B and General Obligation Refunding Bonds, Series 2025A (Forward Delivery). KBRA additionally affirms the AA long-term rating on the State's parity General Obligation Bonds, and the AA- long-term rating on the Alaska Municipal Bond Bank Authority's G.O. Bonds outstanding.
The Stable Outlook reflects the expectation that Alaska will continue to meet ongoing budgetary requirements with measured recurring utilization of APF-ERA transfers resulting in the continuing maintenance of very strong reserves. The outlook is further supported by continued exploration and development of the State’s vast energy resources, particularly in the Alaska North Slope and Cook Inlet basins, and KBRA’s expectation that planned resource extraction projects will continue to support the State’s long-term comprehensive Fiscal Plan. In KBRA’s view, the State's prudent financial management will remain critical to countering its inherent vulnerability to both environmental risks and volatility in the energy sector.
Key Credit Considerations
The rating actions reflect the following key credit considerations:
Credit Positives
- Ample reserves and direct liquidity available to support budgetary operations; and,
- Robust natural resource base, which will likely continue to serve as a key economic driver.
Credit Challenges
- Exposure to commodity pricing volatility, given the employment and economic output concentration in natural resource extraction and production; and,
- Fluctuating budgetary performance, buoyed by the reliance on accumulated reserves to balance fiscal operations.
Rating Sensitivities
For Upgrade
- Decreased reliance on APF-ERA earnings to balance budgetary operations.
- A meaningful diversification of revenue sources, alleviating the concentration in energy price sensitive natural resource-derived revenues.
- Increased diversification of the State economy over time could lead to upward rating migration.
For Downgrade
- A weakening of budgetary performance, reserves, or direct liquidity.
- A continuation of structural budgetary imbalance, leading to the depletion of available reserves to levels no longer commensurate with the assigned rating.
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