Fitch Rates Indiana Finance Authority's Lease Appropriation Bonds 'AA+'; Outlook Stable.
ENPNewswire-January 21, 2022--Fitch Rates Indiana Finance Authority's Lease Appropriation Bonds 'AA+'; Outlook Stable
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Release date- 20012022 - Fitch Ratings has assigned a 'AA+' rating to Indiana Finance Authority's (IFA) $350.82 million lease appropriation refunding bonds (stadium project) series 2022A.
The Rating Outlook is Stable.
The series 2022A bonds are expected to sell via negotiation on or about Jan. 25, 2022. The bonds are being issued to refund the IFA's series 2005A, 2007A and 2008A stadium project bonds. Proceeds will also be used to terminate associated swap agreements and cover costs of this issuance.
SECURITY
The bonds are limited obligations of the IFA, backed by biennial state legislative appropriations. Indiana expects local earmarked tax revenues will continue to be sufficient to pay debt service and state general fund revenues will not be necessary for this purpose.
ANALYTICAL CONCLUSION
The 'AA+' rating on the bonds reflects ultimate access to legislative appropriations and the bonds are rated one notch below the state's 'AAA' Issuer Default Rating (IDR) reflecting appropriation risk.
Indiana's 'AAA' IDR is based on the state's low long-term liability burden and exceptionally strong operating profile, including prudent budget management leading to robust financial reserves, which offsets the state's above-average susceptibility of revenues to weakness during recessions.
Economic Resource Base
Despite ongoing diversification, Indiana's economy remains highly dependent on manufacturing at approximately double the national levels in employment and GDP. Historically, this has left Indiana susceptible to both slower growth and deeper declines in downturns than the nation as a whole.
KEY RATING DRIVERS
Revenue Framework: 'aa'
Fitch expects that Indiana's revenues will continue to reflect the state's broad economy, which is tilted toward manufacturing, growing at a slower pace than the nation's, and roughly in line with inflation. Indiana has complete legal control over its revenues, which are primarily income and sales taxes.
Expenditure Framework: 'aaa'
Indiana maintains ample expenditure flexibility with a low burden of carrying costs and the broad expense-cutting ability common to most U.S. states. Medicaid remains a key expense driver, but one that Fitch expects the state will be able to actively manage without threatening fiscal stability.
Long-Term Liability Burden: 'aaa'
Indiana's long-term liability burden is low, at just below the median for U.S. states. The state issues debt infrequently and relies on pay-as-you-go capital funding. The closed Indiana State Teachers' Pre-1996 Account (the pre-1996 account) constitutes the bulk of the state's net pension liabilities (NPL), and overall liability burden. The state utilizes a dedicated pension stabilization fund (PSF) to manage growth of annual pay-as-you-go contributions, offsetting the plan's sizable NPL.
Operating Performance: 'aaa'
Indiana remains very well positioned to deal with economic downturns, with exceptionally strong gap-closing capacity in the form of ample budgetary reserves, robust control over revenues and spending and a demonstrated willingness to take timely budgetary action. As revenues recover, Indiana restores many of those cuts and focuses on reserve restoration.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Not applicable given the 'AAA' IDR.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
An unexpected and material deterioration in Indiana's strong budget management practices, such as sustained utilization of nonrecurring fiscal management tools.
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
CURRENT DEVELOPMENTS
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