OREANDA-NEWS. Fitch Ratings has affirmed at 'A+' for the following State of Alaska bonds:

--\$3.2 million sport fishing revenue bonds series 2006;
--\$28.1 million sport fishing revenue bonds series 2011.

The Rating Outlook is Stable.

SECURITY

The bonds are special, limited obligations of the state secured by a surcharge on sport fishing licenses, and to the extent those are insufficient, receipts from base sport fishing licenses, king salmon stamps, and certain federal grant funds.

KEY RATING DRIVERS

STRONG LEGAL PROTECTIONS: The bond resolution provides for segregation of pledged revenues until minimum balances are met with any excess used to redeem callable bonds. A two-tiered additional bonds test, reserve fund at maximum annual debt service, and state non-impairment covenants provide bondholder protection.

NARROW PLEDGED REVENUE SOURCE: The pledged revenue stream is narrow and heavily influenced by discretionary tourist activity in the state.

ADEQUATE DEBT SERVICE COVERAGE: Coverage of annual debt service requirements by pledged revenues remains adequate despite fluctuating fishing activity due to shifts in the number of tourists visiting the state and salmon runs. Fitch expects pledged revenues to remain volatile over time, while still providing adequate coverage of debt service.

RATING SENSITIVITIES

CONTINUED SOUND COVERAGE: The rating is sensitive to shifts in pledged sport fishing revenue. Fluctuating pledged revenues have lowered actual and expected debt service coverage although satisfactory coverage remains. A decline in pledged revenue beyond current expectations could have a negative impact on the assigned rating.

CREDIT PROFILE
STRONG LEGAL PROTECTIONS

The 'A+' rating on the bonds is based on the strong protections built into the bond resolution. Pledged revenues include a surcharge on sport fishing licenses, put in place on Jan. 1, 2006 explicitly to support the debt, providing just over sum sufficient coverage, as well as base sport fishing license revenues, king salmon stamp fees, and federal grant funds that support the state's sport fishing activities. No further debt issuance is planned or authorized.

The additional bonds test (ABT) is two-tiered, requiring 1.5x coverage of maximum annual debt service (MADS) by pledged surcharge revenue and 2.25x coverage of MADS by all pledged revenue, excluding federal grant revenue. The first tier of the ABT has not been met for many years, as MADS coverage from calendar 2014 surcharge revenue was only 1.3x. Fitch's rating is based on the broader pledge, which provided more than 4x coverage, including federal revenues, in the same year. A debt service reserve fund provides additional protection.

NARROW PLEDGED REVENUE SOURCE

The sport fishing industry is heavily impacted by tourism - 74% of license revenue and 78% of king salmon stamp revenue are from nonresidents - as well as the robustness of the king salmon population. Shifting totals in tourism, interspersed with declines in king salmon runs, have resulted in the volatility of annual surcharge and total pledged revenues. The average annual increase in pledged revenues between calendar years 2010 through 2014 was 1% but this follows year-over-year declines of 4.2% in 2008 and 12.1% in 2009.

There was a positive trend of sports fishing-related revenues in 2013 that continued in 2014. Alaska's department of fish and game reported that early runs of king salmon on various southeast rivers have improved slightly since calendar year 2013, the lowest on record. However, king salmon fishing restrictions and closures of these rivers will impact the sale of general fishing licenses. Other king salmon fishing locations in the state are reporting more robust runs but as the largest share of sports fishing occurs during the summer months and that data is not currently available, it is uncertain as to how the revenues will fare in calendar 2015.

ADEQUATE DEBT SERVICE COVERAGE

Surcharge revenue alone in calendar 2014 provided a relatively narrow 1.3x coverage of \$5 million in debt service, up from a recent low of 1.2x in calendar 2012. When all other pledged revenue is considered, coverage improves to a solid 4.1x.

Scheduled debt service, with final maturity in 2026, is relatively flat to annually declining without giving credit to prepayments. MADS occurs in 2015 and is expected to have solid coverage from all pledged revenue, assuming revenues are in line with calendar year 2014 collections. The additional pledged revenues of federal grants, sport fishing license fees, and king salmon stamp fees provide additional support to bond repayment and the state continues to redeem callable bonds from revenue surplus. Fitch expects the revenue trend to remain volatile yet debt service coverage by all pledged revenues should remain adequate.