Fitch Affirms Texas Public Finance Auth's CP Notes at 'F1+'
--GO CP notes, series 2008 (tax-exempt);
--GO CP notes (Cancer Prevention and Research Institution of Texas Project), series 2010A (taxable) and series 2010B (tax-exempt);
--Tax-exempt CP revenue notes, series 2003.
SECURITY
The GO CP notes are general obligations to which the state pledges its full faith and credit. The CP revenue notes are special obligations of TPFA payable from lease payments of the state, subject to biennial appropriation. Additionally, under individual series standby liquidity agreements, the state comptroller commits to purchase unsold notes from state cash resources.
KEY RATING DRIVERS
AMPLE LIQUIDITY FOR MATURING CP NOTES: State of Texas treasury fund assets managed by the Comptroller are sizable and more than sufficient to support the liquidity needs of maturing CP notes and other short-term securities that are not remarketed. The treasury fund is invested conservatively, with approximately two-thirds of its portfolio invested in short-term treasury, agency or other securities. Coverage of maximum potential liquidity needs is ample for CP notes and other issues whose liquidity is supported by the state.
STATE GO BONDS RATED 'AAA': The state's long-term credit quality is reflected in its 'AAA' GO bond rating, which is based on its low debt burden, conservative financial operations and an economy that continues to grow at a solid pace despite recent energy industry slowing.
RATING SENSITIVITIES
ADEQUACY OF CASH RESOURCES: The rating is sensitive to the continued adequacy of cash resources managed by the comptroller and available to support the notes' liquidity needs.
CREDIT PROFILE
The 'F1+' short-term rating is based on the liquidity support provided by the State of Texas to certain CP programs and variable-rate bonds of various state agencies. Under separate series liquidity agreements between the issuing agency and the Texas Comptroller of Public Accounts, cash resources of the state treasury fund are made available to purchase maturing notes that are not successfully remarketed.
As of Sept. 30, 2015, the state had total liquidity commitments of $889 million, with a maximum daily commitment of $529.3 million; commitments include 365 days of interest at the maximum rate. A total of $618.3 million was outstanding under all of the programs.
The market value of the treasury portfolio was $29.9 billion as of Sept. 30, 2015. Portfolio assets are invested conservatively, with $1.6 billion in cash, repos and bank deposits, and another $1.1 billion in U.S. treasury securities. Agency notes and discount notes totaled nearly $9.7 billion. The weighted average maturity of the treasury portfolio was 1.38 years.
Coverage of liquidity commitments by treasury fund assets remains ample. As of Sept. 30, 2015, treasury fund assets would cover the maximum liquidity commitment under existing programs by 33.6x, and the maximum daily commitment would be covered 56.5x. Coverage remains ample even after applying varying discounts to assets classes with less liquidity, as per Fitch's criteria.
Texas' long-term 'AAA' GO rating reflects its low debt burden, conservative financial operations and a growth-oriented economy that has outpaced national averages through most of the current expansion. The oil price plunge that began in late 2014 has slowed the state's economic and revenue momentum, although broader gains continue despite weakness in some regions and sectors. Fitch believes that the state has ample flexibility to absorb near-term economic and revenue volatility, both in the form of its very large reserve balances and a tradition of taking budgetary actions to maintain balance.
For additional information on the GO rating of the State of Texas, please see Fitch's press release dated Aug. 28, 2015, 'Fitch Rates Texas $1 Billion GO Mobility Fund Bonds 'AAA'; Outlook Stable,' which is available at 'www.fitchratings.com'.
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