KBRA Upgrades State of Connecticut Special Tax Obligation Bonds (Transportation Infrastructure Purposes) to AAA; Assigns AAA Rating to Series 2023 A & B Bonds
29 Sep 2023 | New York
KBRA upgrades the long-term rating to AAA, from AA+, for the State of Connecticut's Special Tax Obligation Bonds, Transportation Infrastructure Purposes. KBRA additionally assigns a long-term rating of AAA with a Stable Outlook for the States Special tax Obligation Bonds, Transportation Infrastructure Purposes, 2023 Series A and Special Tax Obligation Refunding Bonds, Transportation Infrastructure Purposes, 2023 Series B.
The upgrade of the long-term rating for the Bonds recognizes: the increased diversity and resilience of pledged revenues per the phased-in dedication of certain general sales and use taxes, motor vehicle sales tax, and highway use tax receipts; and, the recent stabilization of motor fuel tax receipts following the end of a gas tax holiday that was in place from March 2022 through April 2023. The rating is further underpinned by the ample coverage and growing nature of most revenues pledged to repayment, descending debt service requirements, and a robust legal framework that includes a fully funded debt service reserve fund at maximum annual debt service and a covenant for the State to provide pledged revenues in each fiscal year sufficient to provide at least 2.0x annual debt service coverage. In the event that debt service coverage does not meet the 2.0x requirement, the covenant requires that the State must pass legislation within one year adjusting pledged revenues to satisfy the coverage requirement. Such a covenant is a relative rarity in the broader category of special taxes.
Key Credit Considerations
The rating actions reflect the following key credit considerations:
- Diverse pledged revenue sources provide a stable source of payment solid coverage of debt service requirements.
- The State’s commitment to transportation capital funding is strong and is buttressed by the public support for transportation purposes reflected in the passage of the November 2018 referendum.
- Legal protections are favorable including a covenant to maintain at least 2.0x annual debt service coverage.
- The State’s rate of economic growth has been slower than that of the U.S. and New England region for more than a decade although wealth levels are favorable.
- Transportation needs are substantial and place pressure upon the State’s ability to fund them over the longer term.
- Not applicable at AAA rating level.
- An economic downturn that leads to a sustained decline in coverage levels and budgetary pressure on the State.
To access rating and relevant documents, click here.