Fitch Affirms Alabama Revolving Loan Fund Authority Bonds at 'AA+'
Fitch Ratings affirms the 'AA+' rating on the following special obligation bonds of the Alabama Revolving Loan Fund Authority:
--$19.89 million special obligation and refunding taxable bonds, series 2010.
The Rating Outlook is stable.
The bonds are a special obligation of the Authority, payable from an irrevocable pledge of a portion of the receipts of the privilege and license tax on providers of cellular radio telecommunication services.
KEY RATING DRIVERS
VERY HIGH DEBT SERVICE COVERAGE: Pledged revenues provide high coverage of debt service requirements on both an annual and maximum annual debt service (MADS) basis. Fiscal 2012 revenues covered debt service 45x.
VOLATILITY IN PLEDGED REVENUES: Concern about the narrow revenue pledge is mitigated by the widespread and increasing use of telecommunications and the history of strong growth in the revenue base. However, it is notable that shifts in mobile device usage and technology have resulted in lower tax revenues over the past two years.
CLOSED LIEN: The bonds have a first claim on pledged revenues and no additional parity borrowing is permitted under the authorizing legislation.
The 'AA+' rating reflects the strong security provided by the privilege and license tax levied on cellular radio telecommunication services. The pledged tax, which has been in place since fiscal 1990, provides exceptionally high coverage of both annual debt service and MADS. Fiscal 2012 revenue of $82.4 million provides 45x coverage of both annual debt service and MADS of $1.85 million.
The tax is levied at 6% of gross sales or gross receipts of the monthly charges from the furnishing of mobile telecommunication services to a customer with a place of primary use in the state. The tax is currently paid by 58 service providers, of which, the top 10 taxpayers provide 90% of revenues. Concern over the narrow revenue pledge is mitigated by the widespread use of telecommunications devices and the history of strong debt service coverage by the pledged tax.
Tax revenues showed consistent strong growth through 2009 and peaked at $108 million in 2009, reflecting growth in the use of cell phones and other devices (e.g. Blackberries), rather than a change in the rate. Revenue declined 2.6% year-over-year in fiscal 2010, reportedly due to timing of collections rather than a drop in usage or economic weakness. However, further revenue declines in fiscal years 2011 and 2012 have been attributed by the state to two factors: the exclusion of data services from the taxable base following customer lawsuits, and increased use of prepaid mobile service that is not subject to the mobile communications tax. Prepaid plans are subject to general sales taxes but not to the tax pledged to the bonds. Concern over the contraction of the revenue base is offset by the considerable cushion provided by very high debt service coverage.
Bond proceeds provided funds to 12 state regional planning and development commissions that they leveraged to provide grants and loans for economic development. No additional pledge of the pledged revenues is authorized and any subsequent pledge, other than for refunding the 2010 bonds, would be subordinated to the 2010 bonds. Tax proceeds are applied first to debt service on the bonds, with the balance transferred to the general fund and education trust funds.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from IHS Global Insight.
Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', Aug. 14 2012.
'U.S. State Government Tax-Supported Rating Criteria', Aug 14, 2012.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria
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