Frequently Asked Questions
What types of state credit enhancements are there?
U.S. state credit enhancements give bondholders additional security when compared with bonds that are only supported by the general creditworthiness or similar pledge of a related entity. With enhancements, the program participant, such as a school district, local government, or higher education institution, pays debt service when due based on its own ability. In addition, the state commits itself to paying debt service on behalf of the participant should the participant not be able to make timely payment on the obligations. The state's commitment can take on a variety of forms such as:
- General fund pledges,
- Appropriation pledges,
- State aid withholdings,
- State aid intercepts,
- Moral obligations,
- Permanent funds, and
Which criteria does S&P Global Ratings use to rate state credit enhancement programs?
S&P Global Ratings applies different criteria based on legal features and linkages to the state's general creditworthiness. We rate most state credit enhancements that are linked to the state's general creditworthiness within scope of the "Issue Credit Ratings Linked To U.S. Public Finance Obligors' Creditworthiness" (RLOC) criteria (published Nov. 20, 2019, on RatingsDirect).
We rate state permanent fund enhancements under our "U.S. Public Finance Long-Term Municipal Pools" criteria (published March 19, 2012). For state guarantees that are irrevocable or unconditional obligations and meet legal standards, we apply our "Guarantee" criteria (published Oct. 21, 2016).
What is the relationship between the state credit enhancement rating and the state rating?
Credit enhancements that fall within the scope of the RLOC criteria may be notched off the state rating and typically move in tandem with the state rating. However, the notching differential varies based on several characteristics and may differ among issues within a given program. If a rating is capped due to features such as weak coverage, it is possible that the rating would not move in tandem with the rating on the state.
We may rate state permanent funds enhancing obligations higher than our rating on the state, and the former does not move in tandem with the state rating. These ratings reflect a combination of enterprise and financial risks of the program, including the assessment of loss coverage, operating performance, and financial policies and practices.
Guarantee enhancement ratings, those where the state irrevocably secures the obligation, are equivalent to the state rating.
Can ratings differ within a specific program?
While state programs identify common structural elements, state statutes, and constitutional provisions to be considered for eligibility of the enhancement, our analysis of ratings includes a review of issue-level qualification for participation in the program, related bond documents, and a review of rating qualifications that may exceed state requirements. We evaluate features such as state support, timing and administrative risks, and coverage as applicable. While generally, states structure the enhancements to have similar characteristics across program participants, we take into account credit-specific attributes such as state support, coverage, timing, or adequacy of a debt service reserve. For example, we may differentiate notching below the state based on coverage or cap certain issues three notches below the state due to unmitigated appropriation risk.
What are S&P Global Ratings' primary scope considerations within the criteria?
To be in scope of our RLOC criteria, the state program and the underlying issues have to meet all of the following features:
- The timing of the receipt of funds from the state occurs prior to debt service, and if applicable, includes advance notification to the state of a potential participant default by an independent paying agent;
- The flow of funds from the state is directly to the paying agent (there is no comingling of funds with program participant's operating funds);
- The state is aware of who is participating in the program and the respective debt service associated with each participant;
- Bond documents, state statutes, state policy, or what we view as equivalent are in place and clearly detail the approval process; outline the parties involved in receipt, transfer, and disbursement of state aid; and specify the steps necessary to transfer revenues to the paying agent to ensure timely debt service; and
- The program is authorized by the state statute or constitution or other documents that we view as the equivalent.
We monitor to see if a participant meets state requirements for eligibility for the credit enhancement. Otherwise, aspects that determine what may be in the scope of our criteria are included in greater detail within our criteria and are not program specific.
How does S&P Global Ratings evaluate credit enhancements for issuers other than school districts?
S&P Global Ratings rates credit enhancements for municipal governments, charter schools, and higher education institutions in addition to school districts. Our criteria allow us to differentiate by sector if we view different industry risks or issue-specific risks. For example, in a given state, we may view political or funding risks as heightened for charter schools.
How does S&P Global Ratings evaluate the effect of late budgets on state intercept/withholdings or programs with appropriation risks?
If we view late-budget risk as not mitigated, we will cap the rating at three notches below the state issuer credit rating (ICR) and no higher than 'A+', according to the RLOC criteria. Based on our assessment of the risk, we could rate the issue lower. We may differentiate ratings among issues based on the proximity of debt service due dates to the beginning of the state fiscal year.
How does S&P Global Ratings differentiate between a state aid enhancement and a dedicated tax (that is collected and remitted by a state) with a state intercept feature?
We do not consider bonds supported by pass-through of state-shared taxes and no other extraordinary state liquidity support, such as advancement of revenues, as a state credit enhancement. In these cases, the rating would generally be linked to the underlying obligor. For priority-lien bonds, however, there may be additional linkages to the state as a revenue-sharing entity under certain circumstances.
How does S&P Global Ratings assign and display ratings when there are underlying and state credit enhancement ratings?
Some program participants request ratings from S&P Global Ratings based on their own ability to make timely payments in full, in addition to the state credit enhancement; others only request ratings based on the credit enhancement. In addition, the issue may also be bond insured.
The local currency long-term rating reflects the highest of the ratings requested (bond insurance, state credit enhancement, or the program participant's own creditworthiness).
For issues where S&P Global Ratings rates the bond insurance higher than that on the program participant but lower than the state credit enhancement, the underlying rating (SPUR) reflects the rating on the bond insurer.
The underlying rating for credit program reflects the program participant's own creditworthiness.
Rated State Credit Enhancement Programs
The list of current state programs below is not an exhaustive list. For example, S&P Global Ratings rates several weak-link and long-term municipal pools that have state aid intercept features. Other state credit enhancements only apply to a limited number of issuers. We have chosen to highlight broad-based credit enhancement programs.
|List Of Rated State Credit Enhancement Programs|
|Arizona||Public School Credit Enhancement Program||Permanent Fund||Long-Term Municipal Pools|
|California||Health Facility Construction Loan Insurance Program||Guarantee||Guarantee|
|California||Infrastructure and Economic Development Bank||General Fund||RLOC|
|Colorado||State Aid Intercept Program for Higher Education||General Fund||RLOC|
|Colorado||State Aid Intercept Program (School Districts)||General Fund||RLOC|
|Colorado||Moral Obligation Program for Charter Schools||Moral Obligation||RLOC|
|Georgia||State Aid Intercept||Intercept||RLOC|
|Idaho||Credit Enhancment Program For School District Bonds||Permanent Fund||Long-Term Municipal Pools|
|Idaho||School Bond Guaranty||General Fund||RLOC|
|Indiana||State Aid Intercept||Intercept||RLOC|
|Kentucky||State Aid Intercept for Universities||Intercept||RLOC|
|Massacushetts||Massachusetts Qualified Bond Act||General Fund||RLOC|
|Massacushetts||Massachusetts State College Building Authority||Appropriation||RLOC|
|Michigan||Bond Loan Fund||General Fund||RLOC|
|Michigan||Revenue Sharing Bonds||Withholding||RLOC|
|Minnesota||State Standing Appropriation for Schools||General Fund||RLOC|
|Minnesota||County Credit Enhancement||General Fund||RLOC|
|Minnesota||City Credit Enhancment||General Fund||RLOC|
|Mississippi||Development Bank and Junior College||Intercept||RLOC|
|Mississippi||State Aid Capital Improvement||Intercept||RLOC|
|Missouri||Direct Deposit of State Aid||Withholding||RLOC|
|Nevada||School District Bond Guarantee Program||Permanent Fund||Long-Term Municipal Pools|
|New Jersey||Support of Free Public Schools||General Fund||RLOC|
|New Jersey||Qualified Bond Program||Withholding||RLOC|
|New York||State Dormitory Authoirty; School State Program||Appropriation||RLOC|
|North Dakota||State Aid Intercept||Intercept||RLOC|
|Ohio||Market Access Program||General Fund||RLOC|
|Ohio||State Aid Intercept||Intercept||RLOC|
|Oregon||School Bond Guaranty Program||Guarantee||Guarantee|
|Oregon||State Aid Intercept||Withholding||RLOC|
|South Carolina||State Aid Intercept||Appropriation||RLOC|
|South Dakota||Health and Education Facilities Authority State Aid Intercept||Intercept||RLOC|
|Tennessee||State School Bond Authority||Withholding||RLOC|
|Texas||Permanent School Fund||Permanent Fund||Long-Term Municipal Pools|
|Utah||School Bond Guarantee Program||Guarantee||Guarantee|
|Utah||Moral Obligation Program for Charter Schools||Moral Obligation||RLOC|
|Vermont||Bond Bank||Permanent Fund||Long-Term Municipal Pools|
|Virginia||Virginia Resources Authority||Permanent Fund||Long-Term Municipal Pools|
|Virginia||Virginia College Building Authority State Intercept||Intercept||RLOC|
|Washington||School Bond Program Guarantee||Guarantee||Guarantee|
|West Virginia||Municipal Bond Commission||General Fund||RLOC|
|*RLOC: Issue Credit Ratings Linked To U.S. Public Finance Obligors' Creditworthiness criteria.|
For a current list of state ratings, please refer to "U.S. State Ratings And Outlooks: Current List".
This report does not constitute a rating action.
|Primary Credit Analyst:||Carol H Spain, Chicago (1) 312-233-7095;|
|Secondary Contacts:||Oscar Padilla, Farmers Branch (1) 214-871-1405;|
|Victor M Medeiros, Boston (1) 617-530-8305;|
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: email@example.com.