Fitch affirms Vermont Muni Bank Bonds Program

NEW YORK

Global rating agency Fitch has affirmed the 'AA' rating on Vermont Municipal Bond Bank bonds issued under the 1988 general resolution that are rated by Fitch. The Rating Outlook is Stable.

The bonds are secured by local government borrower loan repayments and debt service reserve funds. A state moral obligation on the reserve fund provides additional credit enhancement and is the basis for the rating.

The ' AA' rating, two notches below the State of Vermont's ' AAA' general obligation (GO) rating, reflects the security provided by the state's moral obligation to replenish the debt service reserve fund if needed.

IMPORTANCE OF BOND BANK: Fitch believes that a rating linked to the state's general credit quality rather than the intended source of bond repayment is warranted by the bank's longstanding role and broad state purpose of providing lower cost financing for local governments in the state as well as the demonstrated state support for the program.

The bond bank is an entity of the state, whose directors are the state treasurer and gubernatorial appointees. In addition to the moral obligation mechanism, the provision to intercept state aid indicates the further involve- ment of the state in the program.

Established in 1970, the Vermont Municipal Bond Bank is administered by a five-member board consisting of four gubernatorial appointees and the state treasurer. The bond bank issues bonds and uses the proceeds to make loans to local government borrowers throughout the state. Borrowers include cities, towns, counties, school districts and other local governments. Almost all loans are backed by a general obligation pledge of the local borrower, with a very limited number backed by utility pledges.

The program's debt service reserve fund, which is sized at the least of maximum annual debt service, 125% of average annual debt service, or 10% of bond proceeds, is funded with bond proceeds. The bonds are supported by a state moral obligation to replenish the debt service reserve fund if it falls below the minimum specified level.

By Vermont law, the chair of the bond bank shall, by Feb. 1 of each year, certify to the governor if additional funds are necessary to restore the reserve to its required level. Such funds shall be requested by the governor by March 1. The general assembly is then legally authorized but not legally obligated to appropriate money to maintain the reserve funds at the required level.