Fitch Rates Ohio Transportation Project Rev Bonds (State GRF) Ser 2014-1 'AA-'; Outlook Stable

Fitch Ratings assigns an 'AA-' rating to the following bonds issued by the state of Ohio (the state) through its state transportation infrastructure general revenue fund bond fund program (GRF program):

--Approximately $3.5 million transportation project revenue bonds, series 2014-1 (City of Dayton-Water Street Parking Facility Project).

The bonds are scheduled to price on April 30. Bond proceeds will be used to finance a portion of the costs of acquiring, constructing, equipping and installing a 428-space public parking facility located in the city of Dayton, and to pay for the cost of issuance.

In addition, Fitch has affirmed the following rating:

--$14.9 million outstanding parity bonds at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The series 2014-1 bonds and other parity bonds are secured by loan repayments from governmental entities throughout the state and amounts in certain pledged funds and accounts.

KEY RATING DRIVERS

SOLID FINANCIAL STRUCTURE: Fitch's cash flow modeling demonstrates that the GRF program can continue to pay bond debt service even with loan defaults in excess of Fitch's 'AAA' liability default hurdle, as produced using Fitch's Portfolio Stress Calculator (PSC).

LOWER RECOVERY PROSPECTS LIMIT RATING: While coverage levels are strong, if any defaults were to occur, recoveries are not expected to be as high as those for traditional federally-regulated state revolving fund programs, whose loans are secured by tax-backed or utility system pledges.

FUTURE LEVERAGING: The rating also reflects Fitch's expectation of additional leveraging to fund loans to political subdivisions throughout the state for transportation projects and uncertainty as to the credit quality of those loans. This risk is somewhat mitigated by minimum bond debt service coverage and reserve balance requirements.

HIGHLY CONCENTRATED LOAN POOL: The combined pledged loan pool, which includes loans made directly from GRF program funds and loans made from bond proceeds, is highly concentrated in comparison to similar programs.

MORAL OBLIGATION ENHANCES STRUCTURE: In the event pledged loan revenues are insufficient to cover debt service or if the reserve balance falls below the required amount, the state provides a moral obligation to replenish such amounts.

RATING SENSITIVITIES

REDUCTION IN MODELED STRESS CUSHION: Significant deterioration in aggregate borrower credit quality, increased pool concentration, or increased leveraging resulting in the program's inability to pass Fitch's 'AA' liability default hurdle would put downward pressure on the rating. The Stable Rating Outlook reflects Fitch's view that these events are not likely to occur.

CREDIT PROFILE

The state's GRF program is an investment fund used to make loans and to provide other forms of credit assistance to public and private entities for the purpose of carrying out highway construction and transit capital projects, including highway, transit, intermodal, rail, airports and waterways. The current bond issuance (2014-1) will be used to finance the acquisition, construction, equipping, and installation of a 428-space public parking facility located in Dayton, OH (the borrower).

FINANCIAL STRUCTURE EXHIBITS STRONG DEFAULT TOLERANCE

Fitch calculates the program's asset strength ratio (PASR), which includes total scheduled loan repayments plus any reserve balances and account earnings divided by total scheduled bond debt service, to be very strong at approximately 2.1x versus Fitch's 2013 sector median of 1.7x. Because of this strong coverage, cash flow modeling demonstrates that the program can continue to pay bond debt service even with hypothetical loan defaults of 100% over any four-year period (as per Fitch criteria, a 90% recovery is also applied in its cash flow model when determining default tolerance). This is in excess of Fitch's 'AAA' liability stress hurdle of 47% as produced by the PSC. The liability stress hurdle is calculated based on overall pool credit quality as measured by the rating of underlying borrowers, size, loan term, and concentration.

ENHANCMENT PROVIDED BY OVERCOLLATERALIZATION AND RESERVES

The program benefits from credit enhancement provided both by pledged revenues in excess of bond debt service due (overcollateralization [OC]) plus amounts and earnings held in program reserves. Minimum annual debt service coverage from OC alone is strong at above 2.0x over the next eight years. After this period, coverage begins to decrease but is expected to be supplemented by future direct GRF program loans.

The program reserve fund, which is required to be maintained at the greater of $5 million or 10% of outstanding bonds, provides additional structural security. The current balance of the program reserve fund is $5 million or approximately 27% of outstanding bonds.

Bondholders are also secured by amounts totaling $21.3 million held in the general revenue fund. However, these amounts are expected to be loaned (recycled) to future borrowers and therefore may not be immediately available for bondholders. If bond debt service shortfalls were to occur, amounts held in the revenue fund will be utilized prior to reserves.

BORROWER POOL EXHIBITS VERY HIGH CONCENTRATION

The combined loan pool consists of 27 loans placed to a total of 17 borrowers. The top 10 borrowers represent a very high 94% of the program pool versus Fitch's median level of 52%. The largest participant, the Toledo-Lucas County Port Authority (security not publicly rated by Fitch), represents approximately 27% of the total pool. The remaining top 10 borrowers range from 1.3% to 16% in size.

Based on the characteristics described above, Fitch views the loan pool as having very high concentration in comparison to other municipal loan pool programs. Pool credit quality is below average with approximately 72% of the loans not rated. Non-rated borrowers are assessed at a 'BB' rating in Fitch's PSC in accordance with its criteria. Among other risks described in the key rating drivers above, the program's concentration is also a factor in Fitch's 'AA-' rating despite the structure's ability to withstand 'AAA'-level stresses.

Revenue pledges include, but are not limited to, motor vehicle taxes, local government tax pledges, toll proceeds, TIF payments, property assessments, license plate and registry fees, other forms of taxes and fees. These are viewed by Fitch as potentially having lower recovery prospects than traditional federal state revolving fund programs, whose loans are secured by tax-backed or utility system pledges.

EFFECTIVE PROGRAM MANAGEMENT AND UNDERWRITING

The program follows a formal underwriting process requiring a review by the Division of Finance within the Department of Transportation, then the approval of both the State Infrastructure Bank Loan committee and the Director of Transportation of the State (the Director). Loans must also meet certain criteria including the possessing a revenue stream from one or more of the following: motor vehicle gas taxes, local government tax pledges, toll proceeds, tax increment financing payments, property assessments, license plate and registration fees, Issue 2 local government funds, or other user payments or fees.

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

Applicable Criteria and Related Research:

--'State Revolving Fund and Leveraged Municipal Loan Pool Criteria' (May 17, 2013);

--'State Revolving Fund and Leveraged Municipal Loan Pool 2013 Peer Review' (Oct 31, 2013);

--'Revenue-Supported Rating Criteria' (June 3, 2013).

Applicable Criteria and Related Research:

State Revolving Fund and Leveraged Municipal Loan Pool Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707257

State Revolving Fund and Leveraged Municipal Loan Pool (2013 Peer Review)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=719991

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827560

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