Fitch af­firms Ver­mont Muni Bank Bonds Pro­gram

The Pak Banker - - Front Page -


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.

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