Kroll Bond Rating Agency Releases U.S. State and Local Government Abatement Lease Rating Methodology

Kroll Bond Rating Agency (KBRA) releases U.S. State and Local Government Abatement Lease Rating Methodology.

Kroll Bond Rating Agency’s rating methodology describes the major factors that are considered when rating the abatement lease obligations of U.S. state and local governments. In abatement lease financing, the obligation of the local government to make lease payments is subject to the availability of a leased project for use and occupancy by the government. KBRA will assign ratings to abatement lease obligations of state and local governments based on the particular entity’s long-term general obligation rating and an evaluation of additional risks posed by the abatement lease structure. Accordingly, the first step in KBRA’s rating process is the assignment or reaffirmation of a General Obligation (GO) rating for the state or local government.

KBRA expects that ratings assigned to the majority of U.S. state and local abatement lease obligations will generally be one to two notches below the government lessee’s general obligation (GO) rating. In certain situations, the rating may be three notches below the government lessee’s GO rating. The process of notching will generally reflect KBRA’s assessment of the risks and the mitigating factors in the particular transaction including: level of construction risk, sufficiency of property and casualty insurance for certain casualty risks, the potential impact of certain uninsured events, such as earthquake or floods, the essentiality of the leased asset, the availability of alternate resources such as a debt service reserve fund and rental interruption insurance, the legal structure of the transaction and the government lessee’s ability and willingness to pay its obligations under all circumstances.

Abatement lease financings evolved in California, Michigan and Indiana as a way for the state and certain of its local governments to finance capital projects over a period of years without being constrained by debt limitations and voter approval requirements contained in the state’s constitutions and statutes.

To view the report, U.S. State and Local Government Abatement Lease Rating Methodology, please visit www.krollbondratings.com.

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About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).