Fitch Rates Wisconsin's $132MM Transportation Revs 'AA+'

Fitch Ratings assigns an 'AA+' rating to the following transportation revenue bonds for the State of Wisconsin:

--$132.09 million transportation revenue refunding bonds, 2014 series 2.

The bonds are expected to sell via negotiated sale as early as Nov. 5, 2014.

The Rating Outlook is Stable.

SECURITY

The bonds are revenue obligations of the state secured by a first lien pledge on vehicle registration and certain related fees levied by the state.

KEY RATING DRIVERS

STABLE REVENUE SOURCE: The principal revenue source, vehicle registration fees, is narrow though stable, and the state has periodically raised revenues to augment coverage.

SATISFACTORY COVERAGE: The additional bonds test requires that pledged revenues cover debt service by 2.25 times (x), a satisfactory level. Coverage of maximum annual debt service (MADS) is ample, although future transportation borrowing could narrow coverage.

MODEST FORECAST GROWTH: Forecast annual growth in pledged revenues is modest and well under historical averages.

KEY RATING SENSITIVITIES

The rating is sensitive to changes to the state's practice of limiting leverage of the pledged revenue stream.

CREDIT PROFILE

The 'AA+' rating reflects ample coverage and security from a first claim on statutorily pledged program income (derived largely from motor vehicle registration fees) along with the satisfactory additional bonds test of 2.25 times (x) and long track record of raising and expanding revenues as necessary. Pledged revenues are essentially a narrow single source and the state's larger transportation fund revenues are not pledged. A proposed constitutional amendment on the Nov. 4 state ballot would require transportation taxes and fees to be deposited into the state's transportation fund and used solely for transportation-related purposes, making this dedication constitutional rather than statutory. This would not affect the rating on the bonds. The current offering is a refunding for debt service savings.

AMPLE COVERAGE FROM NARROW REVENUE STREAM

Vehicle registration fees equal 85% of total program income as of fiscal 2014 (unaudited); other registration-related fees pledged since 2003 include titling and personalized license plate charges. Vehicle registration fees historically have been a stable source of revenues, although they are affected by economic conditions. The state has a history of raising fees to support the program and augment coverage. For instance, it increased the automobile registration fee $20, to $75, and the title transaction fee $24.50, to $69.50 on Jan. 1, 2008. Registration fee revenues consequently rose 18.8% and 11.7% in fiscal 2008 and 2009, respectively, even as recessionary conditions slowed the growth of registrations to 1.1% and 1.2% during those years. Growth in registration fee revenues has been uneven since then, reflecting in part the slow nature of the economic recovery and the state's biennial renewal process for certain vehicle types. Registration revenues declined 1.9% in fiscal 2011 but rose 3.2% in fiscal 2012. They declined a modest 0.62% in fiscal 2013, better than forecast and are estimated to have grown 4.1% in fiscal 2014, also better than forecast. Average annual growth in registration revenues through the fiscal 2022 forecast period is approximately 1.7% annually.

LIMITS ON ADDITIONAL LEVERAGE

The additional bonds test requires 2.25x coverage by historical revenues, with the state targeting a minimum of 2.5x coverage by policy. Total unaudited pledged revenues in fiscal year 2014 were slightly above estimate at $638 million, which provides 2.7x coverage of MADS (in fiscal 2015). Calculations of future debt service assume that $144 million in authorized bonds are issued to refund outstanding transportation revenue commercial paper (CP) notes, whose pledge is subordinate to the bonds. Fiscal 2014 registration fees alone provide satisfactory coverage of MADS equal to 2.3x. During the forecast period from fiscal 2015 to 2022, annual coverage by all pledged revenues ranges from 2.8x in fiscal 2015, the year of MADS, to 4.2x in fiscal 2022.

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

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=912934

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