Market Overview

Fitch Rates Idaho Housing and Finance Association's $75.2MM Bonds 'A+'; Outlook Negative

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NEW YORK--(BUSINESS WIRE)--

Fitch Ratings assigns an 'A+' rating to approximately $75.2 million new issue Idaho Housing and Finance Association (the association) grant and revenue anticipation bonds (GARVEEs). Fitch also affirms the 'A+' rating on approximately $542 million of outstanding parity obligations. The Rating Outlook on all of the GARVEE bonds remains Negative.

The Negative Outlook reflects continued uncertainty in federal transportation policy, less predictable funding levels, and the pending expiration of a majority of federal motor fuel taxes. Fitch assigned a Negative Outlook to the Idaho GARVEEs along with 12 other standalone GARVEE issuers in March 2011 (Fitch Revises Outlook to Negative on Stand-Alone GARVEE Bonds March 9, 2011).

The 'A+' rating reflects the following:

--A long established track record of federal transportation funding;

--Idaho Transportation Department's (ITD) covenant to request obligation of federal surface transportation funds for debt service no more than seven days into each new federal fiscal year;

--The continuous appropriation for debt service by the state legislature of all federal surface transportation receipts;

--Additional bonds test requirement that debt service on a current and projected basis be no more than 30% of ITD's federal aid apportionments.

--The potential for significant changes in federal policy at the end of each surface transportation funding authorization period;

--Final maturity in 2029 which exposes bondholders to a greater level of federal funding reauthorization risk than some other bonds.

KEY RATING DRIVERS:

--A shift in federal reauthorization policy to short-term authorizations rather than multi-year funding;

--Lack of a timely and longer-term extension of the Federal gas tax;

--A marked shift in debt structure to longer maturities.

SECURITY:

The bonds are secured by all federal payments received by the Idaho State Highway account, including but not limited to direct GARVEE debt service reimbursements to be made under a February 2006 Memorandum of Agreement between the ITD and the Federal Highway Administration (FHWA).

CREDIT SUMMARY:

The association has completed four issuances of a total planned $855 million to fund highway construction throughout Idaho, with an additional issuance of approximately $162 million expected in 2011. The state legislature authorized the initial issuance of GARVEEs in 2005. A memorandum of agreement between the FHWA and the ITD and a master financing agreement among the Association, ITD and the Idaho Transportation Board (ITB) establish a payment stream equal to 90% of debt service requirements in each period. Pledged receipts are broadly defined under the indenture to include not only those federal surface transportation funds granted for the purpose of paying debt service but all other federal surface transportation fund receipts as well, meaning other federal surface transportation fund reimbursements are used to pay the remaining 10% of debt service.

Final maturity in 2029 exposes bondholders to a greater level of reauthorization risk than some other bonds of the same type. Assuming the continued practice of six-year federal transportation authorization periods, the bonds will likely span three such periods, while similar debt programs with shorter maturities generally span up to two authorization periods. Increased reauthorization risk is partly mitigated by a debt service coverage ratio on the entire planned $855 million issuance of no less than 4.5 times (x) fiscal 2010 federal receipts of $290 million. There is no guarantee, however, that Idaho's federal transportation funding will grow or even remain stable during subsequent authorization periods. Idaho may be more susceptible than other states to changes in federal funding policy given its status as a donee state; it currently receives $1.64 in federal surface transportation funds for each $1.00 it contributes in motor fuel tax revenues.

Federal revenues become vulnerable to significant changes in federal policy at the end of each funding authorization period. The federal highway trust fund continues to operate but is dependent on general fund transfers. In March 2010, the highway account of the trust fund received a $19.5 billion general fund transfer under the HIRE Act - of which $4.8 billion was earmarked for the Mass Transit Account (MTA) - following a $7 billion general fund transfer in August 2009 and an $8 billion transfer in September 2008. Most recently in March 2011, Congress approved an extension of SAFETEA-LU through the end of the federal fiscal year in September 2011, making this the seventh extension since the original authorization expired on Sept. 30, 2009. While interruption in the flow of federal highway funding is highly unlikely given the broad-based political support for the surface transportation program, multi-year reauthorizations of transportation legislations have often been delayed and replaced with shorter-term authorizations.

One likely outcome of federal policy deliberations is a program that is capped by current gas tax collections. As a result, state programs can expect a reduction in federal grants. According to the Congressional Budget Office, the reduction could be as large as 25%. While a reduction of this magnitude would lower debt service coverage, Fitch would expect the debt service coverage ration to remain above 3.4x assuming the issuance of another approximately $60 million in calendar 2011.

The Connecting Idaho Program is a critical element of the state's transportation investment strategy and involves new highway links, roadway reconstruction and other improvements throughout the state. The original program called for $1.1 billion in issuance to fund improvements along 13 corridors; the current version of the plan calls for $855 million for improvements along six corridors.

Idaho Housing and Finance Association, which is authorized by state statute to issue the bonds, is a body politic and corporate created to assure an adequate source of capital for affordable housing and has the power to finance various facilities for nonprofit corporations. ITD is responsible for building, preserving and operating the state transportation system. The ITB is vested with the authority to control, supervise and administer ITD. Under the master financing agreement each subsequent issuance of debt must be authorized by the legislature, creating flexibility to expand or contract the size of the program.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--Rating Criteria for Infrastructure and Project Finance (Aug. 13, 2010);

--Rating Guidelines for Leveraging Federal Transportation Funds (March 22, 2007).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345

Rating Guidelines for Leveraging Federal Transportation Funds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=319388

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Fitch Ratings
Primary Analyst
Scott Zuchorski, +1-212-908-0659
Director
Fitch, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Raymond Wu, +1-212-908-0845
Analyst
or
Committee Chairperson
Michael McDermott, +1-212-908-0650
Managing Director
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Media Relations:
Cindy Stoller, +1-212-908-0526
Email: cindy.stoller@fitchratings.com

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