OREANDA-NEWS. Fitch Ratings has affirmed the 'AA+' rating on the Commonwealth Transportation Board, VA's (CTB) approximately \$30.26 million of outstanding federal highway reimbursement anticipation notes (FRANs). The Rating Outlook is Stable.

The rating reflects the board's ability to access any legally available funds of the Commonwealth of Virginia, in addition to those specifically with the Transportation Trust Fund (TTF). Fitch rates the Commonwealth's general obligation bonds at 'AAA' with a Stable Outlook. Fitch's criteria 'Leveraging Federal Transportation Grants: Rating Criteria for GARVEE Bonds', dated Aug. 15, 2012, states that Fitch will evaluate the credit quality of the back-up pledge provided relative to the risk of the lien on federal grants. The credit provided by the Commonwealth TTF and, ultimately, other general assembly appropriations is evaluated under Fitch's 'U.S. State Government Tax-Supported Rating Criteria'.

Fitch will generally assign a rating consistent with the higher of the federal grant or the subordinate liens. Currently, the highest rating that Fitch has assigned to standalone GARVEE bonds for which Highway Trust Fund (HTF) revenues are the only pledged revenue source is 'A+', reflecting Fitch's view of the strength of the Federal program. The 'AA+' rating on the Virginia FRANs reflects Fitch's view of the ultimate access to general assembly appropriations (not limited to transportation revenues).

KEY RATING DRIVERS

Dual Pledge: Federal Program Strength - Midrange
CTB's FRANs are secured by the first lien on Virginia's federal highway funds. The notes are also secured by legally available revenues of the transportation trust fund and any other funds designated by the general assembly, which helps offset reauthorization risk.

Federal Program Future Uncertain: Structural Features - Stronger
CTB's receipt of Title 23 funds from the Federal Highway Administration (FHWA) to pay debt service depends on the strength, stability and reliability of the Federal program that authorizes outlays from the Highway Trust Fund (HTF). Given the current uncertainty regarding the future of the HTF, Fitch views the strength of the Federal program as midrange.

Sound Structural Features: Flexibility of the State Department of Transportation - Stronger
CTB's authority to issue additional FRANs expired on July 1, 2011. The GARVEE Act authorizes the board to issue GARVEE notes provided that the aggregate principal amount of FRANs and GARVEEs does not exceed \$1.2 billion. CTB anticipates additional GARVEE issuance of approximately \$715.5 million by 2019. Additional bonds test (ABT) equals to 3.0x maximum annual debt service (MADS). Board debt policy also limits annual debt service to 25% of six-year average of federal highway reimbursements.

Coverage and Strong Backup Pledge: The notes are secured by federal highway reimbursements received by the commonwealth and subject to appropriation by the general assembly. Pledge of federal highway reimbursements has provided strong debt service (DS) coverage of 47.91 times (x) in 2014. The notes benefit from a back-up pledge secured by legally available revenues of the transportation trust fund and any other funds designated by the general assembly.

RATING SENSITIVITIES

The rating is sensitive to changes to Fitch's 'AAA' rating on the Commonwealth's GO bonds, upon which this rating is based.

SECURITY

The notes are secured by federal highway reimbursements received by the commonwealth and subject to appropriation by the general assembly. Further, the notes also are secured by legally available revenues of the transportation trust fund and any other funds designated by the general assembly.

CREDIT UPDATE

The 'AA+' rating is based on ultimate access to legally available funds in the commonwealth's transportation trust fund (TTF) and other general assembly appropriations, though appropriations for debt service are expected to be first met from federal highway reimbursements. The FRANs benefit from a Payment Agreement between the CTB, the commonwealth's Treasury Board, and the Secretary of Finance. The agreement requires that CTB specify to the Governor the amount of DS coming due in the next annual or biennial period. It also requires that CTB, the Treasury Board, and the Secretary of Finance use their best efforts to have the Governor include and the General Assembly appropriate the requested amounts. Pursuant to Virginia legislation, FRANs can no longer be issued as of July 1, 2011.

The TTF currently receives a variety of revenues representing various highway-related taxes and a portion of the state sales and use tax. Total trust fund revenues totaled \$1.19 billion in fiscal year (FY) 2014 and are projected to total \$1.31 billion in FY 2015.

Other CTB issues also ultimately have access to the TTF, including the capital projects revenue bonds the bonds issued for the Northern Virginia Transportation District, Route 28, Route 58, and Oak Grove Connector projects. Fitch expects that TTF revenue would provide at least 2.5x coverage of projected MADS on outstanding and projected debt supported by the TTF.

CTB is responsible for general policies for the construction and use of Virginia's highway system. Among its powers and duties, the board is responsible for the allocation of funds in the TTF. The Virginia Department of Transportation is responsible for the construction, operation and maintenance of the commonwealth's highway system in accordance with policies and procedures adopted by the board.