OREANDA-NEWS. Fitch Ratings assigns an 'AA-' rating to the Maine Municipal Bond Bank's (MMBB) \\$45 million transportation infrastructure revenue bonds (TransCap Program), series 2015A.

Fitch also affirms the 'AA-' rating on the MMBB's outstanding \\$174.46 million Transcap Program revenue bonds.

The Rating Outlook is Stable.

SECURITY
The bonds are limited obligations of the bond bank, payable from various motor vehicle fees and excise taxes, including portions of excise taxes on gasoline, motor vehicle registration fees, and amounts appropriated to the highway fund.

KEY RATING DRIVERS

CONSUMPTION-BASED REVENUE STREAM: Revenues are sensitive to price increases and changes in consumption behavior, especially given the state's sluggish economic recovery and weak demographic trends. Fuel taxes are not indexed, making collections more sensitive to shifts in fuel consumption.

SATISFACTORY DEBT SERVICE COVERAGE: Pledged revenues provide satisfactory debt service coverage on both an annual and maximum annual (MADS) basis, though below the additional bonds test (ABT) standard of 2 times (x) coverage for new money borrowing; the current bonds are for refunding purposes and not subject to the 2x test. No additional new money bonds are currently statutorily authorized.

CONSTITUTIONALLY DEDICATED REVENUES: Portions of various highway revenues, including motor vehicle fees and fuel taxes, are pledged to the bonds. Highway revenues are constitutionally dedicated for highway purposes and statutorily allocated to the TransCap fund from the highway fund.

RATING SENSITIVITIES

DEBT SERVICE COVERAGE: The rating is sensitive to ongoing maintenance of satisfactory coverage by pledged revenues.

CREDIT PROFILE
Fuel taxes, including taxes on gasoline and other motor fuels, constituted 46% of fiscal 2015 pledged revenues. In May 2015 the state's Revenue Forecasting Committee (RFC) forecast revenues essentially flat in fiscal 2015 based on available data through the first 10 months of the fiscal year, and actual revenues were up slightly (0.2%). Going forward, the RFC projects per-gallon fuel tax revenues will increase at an average annual rate of 1.4% between fiscal 2015 and 2019 as the economy continues to recover slowly and vehicle miles travelled increases modestly. The forecast also incorporates the committee's expectation that lower oil prices will support increased gasoline purchases.

Maine's economic growth prospects remain below average. During the recession, the state's peak-to-trough employment loss was less severe than most other states and the nation, but its recovery has significantly lagged. Through August, the state regained just over 70% of the jobs it lost during the recession, which remains one of the weakest job recoveries among the states; U.S. employment fully recovered from recessionary losses last summer. August 2015 year-over-year (yoy) employment for the state increased just 1% (quarterly moving average) versus the national increase of 2.1%. Maine's median age is one of the highest at 43.9 years compared to 37.6 years for the U.S. The state has seen virtually no net population growth since the start of the decade, and Maine's labor force has been flat-to-declining over the past year, all contributing to uncertainty about future workforce growth.

PLEDGED REVENUES PERFORMANCE
Debt service coverage has been adequate, but below the ABT, and remains susceptible to erosion in fuel consumption because of a loss of fuel tax indexing under a statutory change that took effect in 2012 (and which factored into a rating downgrade). Fiscal 2015 pledged revenues covered pro forma MADS (following the proposed series 2015 refunding) by 1.9x, while the ABT sets a 2x test (described further under Rated Security).

The TransCap program has no remaining statutory debt authorization. In a base case scenario derived primarily from the RFC's forecast for fuel taxes and motor vehicle registrations and fees through fiscal 2019, MADS coverage remains at 1.9 - 2.0x from fiscal 2016 through 2019. Under a Fitch stress scenario (6.7% decline in fiscal 2016 to match the worst recessionary decline, followed by annual 2% declines), MADS coverage declines to 1.5x in fiscal 2026 when pro forma MADS occurs. Annual debt service coverage weakens to 1.4x by final maturity in fiscal 2027.

TRANSCAP PROGRAM OVERVIEW
The bond bank serves as the financing agency of the State of Maine for transportation revenue bond projects. Separately secured from the bank's GARVEE bonds and from state general obligation highway bonds, the TransCap program is part of the state's bonding program supporting bridge and highway projects. The 2011 bonds completed issuance under an initial \\$210 million authorization that was subsequently increased to \\$240 million authorization in 2009. The current bonds are for refunding purposes.

The bonds are paid from revenues in a separate TransCap fund statutorily created for the program and held by the bond bank. To provide monies for debt service, the legislature allocated 7.5% of fuel excise tax revenues along with revenues generated by \\$10 increases in motor vehicle registration, title and license plate fees to the fund. In addition, the highway fund's responsibility for public safety expenses was reduced from 60% to 49%, with the general fund assuming the added expenses. The difference between the old and new highway fund obligation (11% of public safety expenses) is pledged to the TransCap fund, providing 13.9% of fiscal 2015 pledged revenues.

RATED SECURITY
The resolution provides for an ABT of 2x of MADS for new money borrowing, excluding the original authorization, based on 12 consecutive months out of the previous 24, a longer than average look-back period. The debt service reserve fund, equal to 50% of MADS, is funded from bond proceeds. On a pro forma basis, debt service declines to \\$3.7 million in fiscal 2016 (excluding a Sept. 1 payment MMBB already made) and holds fairly level at the current approximately \\$20 million from fiscal 2017 through final maturity in 2027.

While pledged revenues are subject to legislative allocation, any revenues generated from motor vehicle fuels or fees (including the pledged revenues) are constitutionally dedicated to highway and bridge purposes.

A memorandum of agreement (MOA) provides for the state's Department of Transportation to include a budget request for debt service in the biennial budget. The MOA also requires the State Treasurer to transfer allocated revenues monthly to the bond bank to support debt service expenses along with capital construction. The broader highway fund, which provides for debt service on the state's general obligation highway bonds, is not pledged.