docstoc: by stojeipatrze


									                                                                                              Public Finance

Special Report
                                             U.S. Public Finance Rating Actions
                                             for Third-Quarter 2010
Analysts                                     Rating Actions
Sarah Repucci                                Fitch Ratings notes that during the third quarter of 2010 and for the seventh consecutive
+1 212 908-0726                              quarter, U.S. public finance rating downgrades outnumbered upgrades. This trend in public
                                             finance ratings is expected to continue as Negative Rating Outlooks exceeded Positive
Eric Friedland                               Rating Outlooks (4.8:1) and Negative Rating Watches still outweighed Positive Rating
+1 212 908-0632                              Watches (5.0:1) in the third quarter of 2010. However, a majority of the actual rating              actions, 74.9%, during the third quarter were affirmations, with no change in Rating
                                             Outlook or Rating Watch status. Furthermore, 90.1% of ratings had a Stable Rating Outlook
Related Research                             at the end of the third quarter.
 2010 Median Ratios for Nonprofit
  Continuing        Care      Retirement     Rating Changes
  Communities, Sept. 28, 2010                   Downgrades: 32 credits, which represented approximately 5.0% of all rating actions
 State Housing Finance Agencies                 and $18.8 billion in par value. In the second quarter, Fitch downgraded 57 credits.
  (Statistical Information), July 29, 2010
 2010 Median Ratios for Nonprofit              Upgrades: 25 credits, which represented 4.0% of all rating actions and $18.1 billion
  Hospitals and Healthcare Systems,
  July 28, 2010
                                                 in par value. In the second quarter, Fitch upgraded 36 credits.
 U.S. Public Power Peer Study,                 The downgrade to upgrade ratio by rating action was 1.3:1 (decreased from 1.6:1 in
  June 16, 2010
 U.S. Public Power Midyear Review,
                                                 the prior quarter).
  June 14, 2010                                 The downgrade to upgrade ratio by par was 1.04:1 (decreased from 2.5:1 in the
 State Housing Finance Agencies 
  2009 Review and 2010 Outlook,
                                                 prior quarter).
  March 25, 2010
 2010      Senior    Living     Outlook,    Rating Outlooks/Watches
  March 16, 2010                                Negative Rating Outlooks: 251 credits (increased from 246 in the prior quarter).
 Tax-Supported Rating Considerations
  for 2010, Feb. 22, 2010                       Positive Rating Outlooks: 52 credits (decreased from 58 in the prior quarter).
 2010 Water and Sewer Sector
  Outlook, Feb. 10, 2010                        Ratio of Negative Rating Outlooks to Positive Rating Outlooks: 4.8:1 (increased from
 2010 Nonprofit Hospitals and Health            4.2:1 in the prior quarter).
  Systems Outlook, Feb. 1, 2010
                                                Rating Watch Negative: 25 credits (increased from 19 in the prior quarter).
                                                Rating Watch Positive: five credits (increased from three in the prior quarter).
                                                Ratio of Negative Rating Watches to Positive Rating Watches: 5.0:1 (decreased from
                                                 6.3:1 in the prior quarter).

                                             Rating Changes by Sector
                                                Tax Supported: 14 downgrades and 11 upgrades.
                                                Education/Nonprofits: no downgrades or upgrades.
                                                Healthcare: five upgrades and two downgrades.
                                                Housing: three downgrades and no upgrades.
                                                Water and Sewer: four downgrades and two upgrades.
                                                Public Power: no downgrades and 10 upgrades.
                                                Transportation: six downgrades and no upgrades.                                                                                    November 12, 2010
                                                                                         Public Finance
                                         State Programs: no downgrades or upgrades.

Fitch-Rated Issues on Rating Watch or Rating Outlook
(Number of Credits)

                                              Positive                                           Negative
                                                                        Change                                             Change
                                                                          from                                               from
                                                                       Previous                                           Previous
                          3Q09   4Q09       1Q10         2Q10   3Q10    Quarter   3Q09   4Q09   1Q10        2Q10   3Q10    Quarter
Rating Watch
Healthcare                  5         5        5           3      5          2     11     10      5           4       4          0
Education/Nonprofits        0         0        0           0      0          0      1      1      0           0       0          0
Housing                     0         0        0           0      0          0      2      1      0           3       6          3
Other Revenue               0         0        0           0      0          0      1      3      5           2       2          0
Public Power                0         0        0           0      0          0      3      1      0           0       0          0
Tax Supported               0         0        0           0      0          0     10      8     10           6       9          3
Transportation              0         0        0           0      0          0      5      5      4           4       3        (1)
Water and Sewer Revenue     0         0        0           0      0          0      4      4      3           0       1          1
Total                       5         5        5           3      5          2     37     33     27          19      25          6

Rating Outlook
Healthcare                 15     10          12          13     13           0    42     39     36          29      33          4
Education/Nonprofits        2      2           3           3      3           0     6      8     10          10       9        (1)
Housing                     1      1           1           1      1           0     4      4      4           3       4          1
Other Revenue               1      0           1           0      0           0     4     10     13           2       2          0
Public Power                8     10           8           6     10           4     5     10      8           9       9          0
Tax Supported              46     38          35          30     22         (8)   152    182    187         144     142        (2)
Transportation              2      1           1           0      1           1    29     32     34          39      39          0
Water and Sewer Revenue     9      8           7           5      2         (3)    12     12     13          10      13          3
Total                      84     70          68          58     52         (6)   254    297    305         246     251          5

                                  Significant Upgrades
                                  California Department of Water Resources Revenue Bonds
                                  The upgrade of California Department of Water Resources’ (DWR) power supply revenue
                                  bonds to ‘AA−’ from ‘A+’ reflects the significantly diminished exposure on the power
                                  supply portion of DWR’s revenues collected from the majority of electric customers in
                                  the state and the solid seven-year history of the California Public Utilities Commission
                                  processing DWR’s revenue requirement on a timely and adequate recovery basis. As
                                  DWR is nearing the end of its power supply contracts’ duration (2015), its power supply
                                  charges are rapidly falling. The diminishing power supply charge is a key credit point,
                                  as the power supply portion of DWR’s charges has historically been the more volatile
                                  piece, due to the associated natural gas commodity exposure and volume (kWh sales)
                                  risk. Additional credit strengths include the diversity of the customer base spread
                                  throughout the state of California, and DWR’s continued maintenance of significant
                                  operating and debt service reserves.

                                  Columbia County, GA GOs and Columbia County Water and Sewer Revenue Bonds
                                  Columbia County, GA’s GO bonds were upgraded to ‘AAA’ from ‘AA+’, reflecting the
                                  county’s continued strong financial performance and stable economy. Financial
                                  operations are impressive, highlighted by consistent operating surpluses, robust reserve
                                  levels, and conservative financial policies. The area economy continues to broaden
                                  slowly and has remained relatively stable during the economic downturn with below-
                                  average unemployment, above-average wealth levels and minimal housing pressures.
                                  Debt levels are low with rapid amortization, and current resources provide a substantial

2                                             U.S. Public Finance Rating Actions for Third-Quarter 2010       November 12, 2010
                                                                                                                Public Finance

 Upgrades and Downgrades of Fitch-Rated Municipal Issues
 (Number of Credits)

                                                            Upgrades                                                    Downgrades
                                                                                          Change                                              Change
                                                                                            from                                                from
                                                                                         Previous                                            Previous
                                    3Q09       4Q09       1Q10       2Q10       3Q10      Quarter        3Q09    4Q09   1Q10   2Q10   3Q10    Quarter
 Healthcare                            4         12          2          5          2          (3)           5      11      3      5      5          0
 Education/Nonprofits                  0          3          5          0          0            0           3       1      2      0      0          0
 Housinga                             59          2          0          1          0          (1)           2       1      0      3      3          0
 Other Revenue                         1          0          1          0          0            0           1       2      0      0      0          0
 Public Power                          0          1          3          7         10            9           0       4      1      0      0          0
 Tax Supported                        16         38          7         18         11          (7)          35      44     25     44     14       (30)
 Transportation                        2          1          2          0          0            0           7       2      2      4      6          2
 Water and Sewer Revenue               3          3          0          5          2          (3)           2       5      5      1      4          3
 Total                                85         60         20         36         25          (5)          55      70     38     57     32       (25)
  3Q09 includes 58 upgrades of closely related Idaho Housing and Finance Association mortgage revenue bonds.

                                            portion of capital funding.
                                            In addition, Columbia County water and sewerage revenue bonds (senior lien) were
                                            upgraded to ‘AAA’ from ‘AA’, as a result of the system’s improving financial
                                            performance and closure of the senior lien. Capital needs are manageable, with no
                                            future debt issuance plans. Rates are competitive with nearby utilities and are well
                                            within Fitch’s affordability criteria, providing rate-raising flexibility.

                                            Southeastern Pennsylvania Transportation Authority Revenue Bonds
                                            Southeastern Pennsylvania Transportation Authority (SEPTA) revenue bonds were
                                            upgraded to ‘AA’ from ‘A+’ in light of sustained solid debt service coverage provided by
                                            a diverse set of pledged revenues and enhanced bondholder protection resulting from
                                            the legislative closure of the lien. While the dedicated fees and taxes supporting the
                                            bonds are sensitive to economic cycles and have experienced declines in recent years,
                                            MADS coverage is still a solid 2.75x by fiscal 2010 revenues. Maintenance of balanced
                                            financial operations and resolution of the funding gap affecting state subsidies to SEPTA
                                            are important for the long-term viability of the system.

                                            Significant Downgrades
                                            Pacific Beacon Military Housing Revenue Bonds
                                            Fitch downgraded the following classes of Pacific Beacon LLC military housing taxable
                                            revenue bonds (Naval Base San Diego Unaccompanied Housing Project), 2006 series A
                                            (the bonds): $187 million senior class I bonds to ‘AA’ from ‘AAA’; $64 million
                                            subordinate class II bonds to ‘A’ from ‘AA’; and $56 million subordinate class III bonds
                                            to ‘BBB―’ from ‘A’.
                                            The bonds were placed on Rating Watch Negative due to the asset manager’s
                                            projections of weakened debt service coverage levels projected for the July 2011
                                            payment date.
                                            The downgrade reflects a projection from the asset manager for the July 2011 debt
                                            service payment which demonstrates debt coverage of 1.02x for the class III bonds. This
                                            projected coverage ratio incorporates the asset manager deferring their fees, and Fitch
                                            believes that this is reflective of the project showing signs of stress. The asset manager
                                            attributes the stress to three major factors: amount of time needed to lease up units
                                            greater than anticipated; higher operating expenses, particularly for utilities and

U.S. Public Finance Rating Actions for Third-Quarter 2010                        November 12, 2010                                               3
                                                    Public Finance
    marketing; and lower than anticipated occupancy, which is 91% as of June 2010.

    Chicago, IL GOs
    Chicago GO bonds were downgraded to ‘AA’ from ‘AA+’. The downgrade is a result of
    the city’s weakened financial flexibility as the result of sharp tax revenue declines and
    the accelerated use of reserves to balance operations. The bonds have a Negative
    Rating Outlook, which reflects Fitch’s concern that achieving structural balance in the
    near term will be difficult given rising employee costs and a reluctance to increase
    property taxes; significant additional expenditure reductions mostly related to
    personnel will be required. Furthermore, there is continued significant pension
    underfunding reflected in a very large unfunded accrued actuarial liability (UAAL) that
    is expected to continue to grow absent management action.
    While the economy remains broad and diverse, the city continues to experience large
    budget gaps, multiple years of structural imbalance, and a large and rapidly growing
    unfunded pension obligation. High unemployment rates, a significant degree of
    exposure to sub-prime mortgage risk and above average foreclosures continue to
    challenge tax revenues. In fiscal 2011, the city faces its largest ever budget gap of
    $654.7 million. Fitch believes rising costs for public safety and the continued slow
    economic recovery will severely limit the city's ability to achieve structural balance in

    Pawtucket, RI GOs
    Fitch downgraded the City of Pawtucket, Rhode Island's general obligation (GO) bonds
    to ‘BBB+ from ‘A’ and placed the bonds on Rating Watch Negative. The two notch
    downgrade reflects the city's extremely limited financial flexibility as a result of
    significant deterioration in the city's general fund and high cumulative deficit balance
    in the school fund caused by material cuts in state aid, a downturn in the economy and
    school department overspending. The Negative Rating Watch reflects Fitch's concern
    about the city's successful and timely implementation of a plan to make up for lost
    motor vehicle phase out monies in order to curtail shortfalls in cash flow.

    Puerto Rico Aqueduct and Sewer Authority Revenue Bonds
    The downgrade of the Puerto Rico Aqueduct and Sewer Authority (PRASA) revenue
    bonds to ‘BBB’ from ‘BBB+’ reflects the weakened financial performance of PRASA’s
    combined water and sewer system in recent years and forecasts revenue shortfalls that
    could pressure PRASA’s ability to be a self-supporting enterprise without ongoing
    commonwealth assistance. Major improvements in operations and financial
    performance have occurred since the change in governance structure in 2004, although
    financial margins are weak and bad debt levels have increased. In addition, the capital
    improvement program (CIP) is substantial and fairly rigid over the near term.
    With minimal surplus revenues available for equity funding of capital, PRASA
    anticipates relying almost exclusively on borrowable sources. Consequently, debt levels,
    which are already moderately high, will rise further as the current CIP progresses and
    place increasing pressure on the authority’s already weak financial margins.

    Utah Transit Authority Sales Tax Revenue Bonds
    The downgrade of Utah Transit Authority’s (UTA) senior lien sales tax revenue bonds to
    ‘AA’ from ‘AA+’ and subordinated lien sales tax revenue bonds to ‘AA―’ from ‘AA’
    reflects the unexpectedly steep decline in sales tax collections associated with the
    recession and the resulting narrowing of debt service coverage, particularly on the
    subordinate lien bonds. While the ratings continue to reflect the strength and diversity
    of the UTA’s service area within Utah's economic epicenter (the Wasatch Front), and
    the demonstrated record of successfully and conservatively managing transit service

4           U.S. Public Finance Rating Actions for Third-Quarter 2010    November 12, 2010
                                                                                                     Public Finance
                                operations and expansion, the reduced debt service coverage is not consistent with the
                                higher rating category.
                                Historically, debt service coverage had been strong, not unusual for a sales tax
                                supported transit system; however, coverage has narrowed considerably with recent
                                debt issuance during this period of declining sales tax revenue. Fiscal 2009 sales tax
                                revenues provided a still satisfactory 2.9x coverage of annual senior lien debt service
                                and 2.5x coverage of total debt service. However, annual aggregate debt service
                                coverage is projected to declines to approximately 1.1x over the next two to three
                                years as UTA finishes its capital plan.

                                Copyright © 2010 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004.Telephone: 1-
                                800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except
                                by permission. All rights reserved. In issuing and maintaining its ratings, Fitch relies on factual information it receives from
                                issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of
                                the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of
                                that information from independent sources, to the extent such sources are available for a given security or in a given
                                jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary
                                depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the
                                rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information,
                                access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as
                                audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other
                                reports provided by third parties, the availability of independent and competent third-party verification sources with
                                respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of
                                Fitch’s ratings should understand that neither an enhanced factual investigation nor any third-party verification can ensure
                                that all of the information Fitch relies on in connection with a rating will be accurate and complete. Ultimately, the issuer
                                and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering
                                documents and other reports. In issuing its ratings Fitch must rely on the work of experts, including independent auditors
                                with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings are inherently
                                forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as
                                facts. As a result, despite any verification of current facts, ratings can be affected by future events or conditions that were
                                not anticipated at the time a rating was issued or affirmed.
                                The information in this report is provided “as is” without any representation or warranty of any kind. A Fitch rating is an
                                opinion as to the creditworthiness of a security. This opinion is based on established criteria and methodologies that Fitch is
                                continuously evaluating and updating. Therefore, ratings are the collective work product of Fitch and no individual, or
                                group of individuals, is solely responsible for a rating. The rating does not address the risk of loss due to risks other than
                                credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch
                                reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for,
                                the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither
                                a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents
                                in connection with the sale of the securities. Ratings may be changed or withdrawn at anytime for any reason in the sole
                                discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or
                                hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular
                                investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from
                                issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000
                                to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues
                                issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees
                                are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment,
                                publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in
                                connection with any registration statement filed under the United States securities laws, the Financial Services and Markets
                                Act of 2000 of Great Britain, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic
                                publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print

U.S. Public Finance Rating Actions for Third-Quarter 2010              November 12, 2010                                                                     5

To top