The Aa2 ratings on the Colorado School District and Higher Education Enhancement Programs are based on Moody's assessment of the program mechanics, history, and the state commitment, including the statutory requirement of an unlimited advance from available state funds.
The Aa3 rating on the Colorado Charter School Moral Obligation Program reflects the credit quality of the State of Colorado (Issuer Rating Aa1 stable) and the provisions of the program. The program's strengths include statutory requirements that the Colorado Education and Cultural Facilities Authority and the governor request the legislature to make an appropriation to replenish the debt service reserve fund of any charter school bonds covered by the program in the event of a draw on that fund. The rating also reflects the importance of charter schools in the state's K-12 education system, the legislature's demonstrated support for assisting charter schools with the financing of capital projects, and the state's established track record of making appropriation-backed debt payments under a variety of financing agreements for state projects. The two-notch distinction between the programmatic rating and the state's issuer rating reflects the contingent, subject-to-appropriation nature of state's support; the generally low investment grade underlying credit quality of the charter school bonds covered by the program; and the risks inherent in charter school debt.
RATING OUTLOOK
The outlook for Colorado's long-term ratings is stable. The state has generally conservative financial practices and a history of timely appropriations for the lease payments securing the vast majority of its debt. The economy's fundamentals remain strong and a better than average recovery from the current slowdown is likely. Debt levels are expected to remain moderate.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- A significant and sustained increase in financial reserves.
- Voter actions that enhance the state's fiscal health and flexibility.
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- A sustained weakening of GAAP-basis fund balances or a significant weakening in liquidity.
- Voter actions that further constrain the state's fiscal flexibility.
- A protracted weakening of the state's generally strong economic fundamentals.
LEGAL SECURITY
The issuer rating represents the rating Moody's would assign to the state's general obligation bonds.
The general fund COPs are secured by lease payments made from the state's general fund for use of the various lease properties. The lease payments are subject to annual appropriation by the state legislature.
The Building Excellent Schools Today (BEST) capital construction program was approved by state statute in the 2008 legislative session. The outstanding BEST COPs are payable on a parity basis solely from gross lease payments annually appropriated by the legislature. The state has identified specific revenue streams from which it anticipates making these appropriations. These include revenues from the State School Land Trust, matching payments made by the local school districts participating in the program, certain excess lottery revenues, and an allocation of marijuana excise tax revenues. The State School Land Trust receives rent and royalty payments from various land lease agreements in the state. Ultimate security for the bonds is provided by the state's ability to appropriate funds from any legally available source, including the state's general fund, if revenues from the State School Land Trust and other identified revenues are insufficient to make certificate payments. The obligation to make lease payments is absolute and unconditional, once appropriated, and the availability of the state general fund, if needed, mitigates risk of any failure to receive participant matching payments.
The CDOT COPs are payable from lease payments to be made by CDOT for use of the leased assets, including its headquarters facilities in Denver, Pueblo, Greeley and Aurora. Lease payments are not subject to appropriation by the legislature but are subject to allocation by the STC as part of its approval of CDOT's budget.
The Rural Colorado COPs are secured by lease payments to be made by the state for the use of certain existing state facilities. Annual lease payments are to be made, in part, from the state's General Fund and, in part, from the State Highway Fund. Payments from the General Fund are subject to annual appropriation by the state legislature. Payments from the State Highway Fund are not subject to appropriation, but are subject to annual allocation by the state's Transportation Commission.
The Colorado School District and Higher Education Enhancement Programs are unlimited advance programs whereby, upon notification from a paying agent, the state treasurer will make up debt service deficiencies for a school district from immediately available funds as outlined in state statutes.
The Colorado Charter School Moral Obligation Program is open to charter schools that have issued bonds through the Colorado Education and Cultural Facilities Authority and have received an underlying investment grade rating. Charter school bonds that have qualified for and are participating in the program have a debt service reserve funded at MADs. Per the statutes, if there is a draw on the bond debt service reserve that is not immediately replenished, the authority shall submit to the governor a certificate certifying the amount required to restore the bond debt service reserve to the reserve requirement. The governor, in turn, shall submit to legislature a request for an appropriation in an amount to restore the bond debt service reserve fund. In the indentures for the charter school bonds, the authority covenants to make the notice to the governor. Per authority staff, the notice to the governor would be made "within days" of a draw on the bond debt service reserve. The statutes and the indenture do not specify the timing of the actions by the authority and the governor, a weakness compared to other moral obligations.
Charter school bonds participating in the Moral Obligation Program also benefit from the Colorado Charter School Debt Service Reserve Fund (CCSDSRF). This is a separate reserve, held by the State Treasurer, which is available to pay debt service on participating charter school debt. The balance in the fund totals over $14 million, funded by annual 10 bps payments by participating charter schools and funds appropriated by the state legislature. If, 10 days prior to a debt service date, the trustee for a participating charter school bond has not received funds for the payment of principal and interest and the bond debt service reserve has been depleted, the trustee shall notify the State Treasurer and the State Treasurer will make the debt service payment using money in the CCSDSRF. Payment of debt service using money in the CCSDSRF does not require additional appropriation by the legislature.
PROFILE
Colorado is the 21st largest state by population, at 5.8 million. Its state gross domestic product, $390.3 billion, is the 16th largest. Income levels are above average--the state's per capita personal income is equal to 108.3% of the US level and its poverty level is among the lowest in the nation.
METHODOLOGY
The principal methodology used in the the State of Colorado's issuer rating was US States and Territories published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1084466. The principal methodology used in the Colorado Charter School programmatic issuer and lease ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1102364. The principal methodology used in the enhancement program ratings was State Aid Intercept Programs and Financings published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1067422. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are all solicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM906595753 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:
- Rating Solicitation
- Issuer Participation
- Participation: Access to Management
- Participation: Access to Internal Documents
- Disclosure to Rated Entity
- Endorsement
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Kenneth Kurtz Lead Analyst State Ratings Moody's Investors Service, Inc. One Front Street Suite 1900 San Francisco 94111 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Marcia Van Wagner Additional Contact State Ratings JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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