OREANDA-NEWS. September 16, 2015. Fitch Ratings has assigned an 'A+' rating to the following state of Mississippi gaming tax revenue bonds:

--\\$200 million series 2015E.

The bonds are expected to sell via negotiation the week of Sept. 21, 2015.

The Rating Outlook is Stable.

SECURITY
The bonds are limited obligations of the state, payable from an allocation of gross statewide gaming tax revenue less a portion allocated to local government. Payment of debt service is not subject to appropriation.

KEY RATING DRIVERS

AMPLE COVERAGE FROM GAMING TAXES: Bonds are secured by a statutory allocation of gaming tax revenues that was previously used to supported general obligation debt service on bonds that are maturing. Gross gaming revenues provide 4.6x coverage of the annual statutory allocation and more than 10x coverage of maximum annual debt service (MADS).

DECLINING REVENUE STREAM: While debt service coverage is strong, pledged gaming tax revenues have been volatile, reflecting the competitive gaming environment as well as sporadic weather-related revenue shocks. Gaming revenues and gaming-related tax revenue peaked prior to the last recession and have generally been declining since.

LOW LEVERAGE: The state is issuing its full statutory authorization with these bonds and has ample capacity to support debt service from the pledged revenue stream. No additional borrowing is anticipated. Given the low leverage, gaming revenues can sustain annual declines of over 10% and still provide sufficient coverage through the life of the bonds.

RATING SENSITIVITIES
The rating is sensitive to declines in gaming tax revenues that exceed expectations. The rating assumes limited additional borrowing.

CREDIT PROFILE

The 'A+' rating considers the discretionary nature of gaming- related tax revenues, which are sensitive to economic factors, existing and future competition, and in the case of Mississippi, weather-related events. Offsetting these inherent uncertainties is the ample coverage of debt service by gaming tax revenues and the expectation of limited leveraging of the pledged revenue stream.

Mississippi authorized gaming in 1990 with passage of the Gaming Control Act. Initially, gaming was only permitted on cruise vessels located in waters within the state, if approved by voters in eligible counties. Gaming is approved in nine of the 14 eligible counties on the Mississippi River and the Gulf Coast and there are currently 28 casinos distributed in three areas (Gulf Coast, and north and south Mississippi River regions). Following Hurricane Katrina (2005), when the barge-based casinos along the Gulf Coast were virtually destroyed, the legislature amended the Gaming Control Act to permit land-based gaming in the Gulf Coast only.

Gaming tax revenues are collected by the state department of revenue, with a portion shared with the gaming counties and the balance allocated to the state. The state portion primarily supports general fund operations with \\$3 million transferred first each month to the dedicated gaming tax fund in support of debt service.

GAMING - A MATURE INDUSTRY

Trends in gaming and associated tax revenues in the state reflect national trends related to gaming and increased regional competition, local and national economic and demographic factors, as well as temporary effects of weather-related events. Mississippi casinos directly compete with facilities in neighboring states as well as two Native American casinos in central Mississippi. Although there is currently a casino under construction on the state's Gulf Coast, two casinos closed in 2014 and a third is scheduled to close in October, directly linked to competitive pressure.

Gross gaming revenues have been declining since the start of the recession in 2007 and have not recovered with improvements in the state's economy. There is some regional differentiation, with Gulf Coast casinos continuing to generate modestly increasing gross gaming revenue while the north and south Mississippi River counties have recorded declines. Gross gaming revenue demonstrated 10 years of solid growth, mirroring national trends, until Hurricane Katrina struck in 2005. Gaming revenues declined 11% in 2005 before rebounding for two years prior to the recession. Since 2007, however, gaming revenues have exhibited a compound annual growth rate (CAGR) of -4.7%.

AMPLE DEBT SERVICE COVERAGE

Gaming tax revenue has also been declining; however, due to the minimal amount of leveraging of the pledged revenue stream, debt service coverage is quite high.

Gaming tax revenues peaked in 2005 at \\$223 million before falling 18.6% following Hurricane Katrina. Although there was a strong rebound in 2007, with 22.1% year-over-year growth, tax revenues have since declined in most years. The CAGR for the last 10 years (2005-2015) is -2.8% and includes a small uptick in fiscal 2015 of 2.1%.

Gaming tax revenues are derived primarily from an annual fee on casino operations that includes both a fixed base amount and a component based on revenues. A small percentage of state tax revenue is also derived from application and annual fees on gaming establishments, related manufacturers, and distributors.

The state intends to limit leveraging of the pledged revenue stream to the current issuance, which represents the full statutory authorization. Fiscal 2015 gaming tax revenues provide very strong 10.4x coverage of pro forma MADS. Fitch break-even analysis indicates sum sufficient coverage in all years even with annual declines of 10.5% through the life of the bonds.

Debt service is structured to be lower than the \\$36 million dedicated tax allocation, with the balance available to finance infrastructure in gaming counties. Fiscal 2015 gaming tax revenues provide strong 4.65x coverage of the \\$36 million allocation, which is the maximum amount available for leverage under the additional bonds test (ABT).

SATISFACTORY LEGAL PROVISIONS

Legal provisions are satisfactory. The ABT requires prior fiscal year revenues to provide both 3x coverage of MADS from gaming tax revenues and sum sufficient coverage from the \\$36 million in dedicated gaming tax revenues. The latter provision in particular limits leveraging of the revenue stream, although it is currently well in excess of anticipated debt service. There is non-impairment language to not take any action that would reduce MADS coverage below 3x from gaming tax revenues and 1x from dedicated tax revenues. A reserve fund equal to MADS will be funded from proceeds.