May 28, 2024

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Two rating agencies reward Alaska for managing cyclical revenue swings

3 min read
Two rating agencies reward Alaska for managing cyclical revenue swings

Alaska’s efforts to build reserves and manage cyclical financial swings caused by its oil dependence were rewarded Tuesday by two rating agencies, garnering an upgrade from one and a positive outlook from another.

S&P Global Ratings raised its long-term rating to AA from AA-minus and assigned a stable outlook ahead of the state’s plans to current refund $110.8 million in series 2010A taxable Build America Bonds. Moody’s Ratings revised its outlook to positive from stable and affirmed its Aa3 GO rating.

“The upgrade incorporates our view of Alaska’s financial stability and considerable budgetary surpluses achieved over three consecutive fiscal years, which we believe reflects the state’s prudent management of expenditure growth within budgets and conservative revenue forecasting as energy prices have rebounded,” said S&P Global Ratings credit analyst Thomas Zemetis.

An oil drilling rig on Alaska’s North Slope. Rating agencies rewarded the state’s efforts to attain structural financial balance despite it’s dependence on fluctuating oil revenue.

Bloomberg News

Moody’s cited for its positive outlook the “state’s improved budgetary reserve fund balance, its conservative financial management, substantial reductions in long-term liabilities and progress on large North Slope projects that will support and extend petroleum industry revenue.”  It affirmed the Aa3 rating on Alaska’s long-term debt, and assigned the same rating to the upcoming debt.

S&P’s upgrade also reflects the expectation that Alaska “remains committed to sustaining long-term structural balance of financial operations, while also transferring current-year and projected revenue windfalls to build upon already high reserves, which we believe helps to offset volatility from its cyclical revenue base,” Zemetis said.

S&P cited for the stable outlook faith in management’s ability to implement spending controls when necessary to attain long-term financial stability even through fluctuations in energy and equity markets. The outlook had been positive at the old, lower rating.

“It also reflects our view that the state will continue its commitment to sizing its permanent fund dividend to residents in a way that also supports retention of earnings in the earnings reserve account and maintenance of high reserves at levels sufficient to offset potential cyclical volatility of the state’s petroleum-derived revenues,” S&P analysts wrote in the report.

S&P also raised its long-term and underlying ratings to AA-minus from A-plus on the state’s $154.3 million of lease appropriation-backed debt and the Alaska Municipal Bond Bank’s $1.03 billion in outstanding bonds.

Kroll Bond Rating Agency, which began rating the state in July, assigned an AA long-term rating with a stable outlook at the time, and affirmed it Wednesday.

Fitch affirmed an A-plus issuer default rating and stable outlook in October.

Alaska’s forthcoming deal would current refund Series 2010A Build America Bonds, according to the rating reports.

A steady stream of issuers have used extraordinary redemption provisions to redeem BABs in recent months, citing a recent lawsuit declaring the long-running federal cuts in BAB subsidies to be such an extraordinary event, raising the ire of some BAB investors who have threatened legal action.

Ryan Williams, the state’s debt manager, could not be reached for comment.

No preliminary official statement for new bonds or redemption notice for the 2010A bonds has been posted on the Municipal Securities Rulemaking Board’s EMMA bond disclosure website as of Wednesday.

The official statement for the 2010A bonds allows Alaska to redeem the bonds at any time at a “make-whole” price; and separately permits extraordinary optional redemption, but also at the “make-whole” price.