Fitch Affirms Oregon's Lottery Revs at 'A+'; Outlook Stable.

NEW YORK -- In the course of routine surveillance, Fitch Ratings affirms the underlying 'A+' ratings on the following series of the State of Oregon's lottery revenue bonds:

--1998A, 1998B, 1999A, 1999B, 2000A, 2001A, 2001B, 2002A, 2002B, 2002C, 2003A, 2003B, 2004A, 2004B, 2005A, 2005B (taxable), 2005C, 2006A, 2007A, and 2007B (taxable).

Oregon's lottery revenue bonds represent special obligations of the state, and the 'A+' rating is based on a constitutional pledge of unobligated net lottery proceeds and certain investment earnings. The credit is enhanced by the commitment of the State of Oregon (general obligation bonds rated 'AA' by Fitch) to replenish any deficiency in reserve accounts that equal maximum debt service. The substantial revenues available from the lottery, the broad debt service coverage, and restrictive 4 times (x) additional bonds test, as well as the state's involvement, particularly in its reserve fund commitment, offset the discretionary nature of lottery purchases, the increasingly heavy dependence on video lottery, and potential competition for gambling dollars. The Rating Outlook is Stable.

The lottery, which has constitutional status and has been voter approved, began operations in 1985. The video lottery, which began in 1992 and is offered at terminals at bars and taverns, now accounts for about 88% of expected fiscal 2010 lottery income and is projected to rise to 92% by 2015. Lottery revenues represent approximately 8% of projected 2009-11 biennial general fund revenues, demonstrating their importance to the state. While traditional lottery receipts have been slowly declining over the past few fiscal years, with annual declines averaging 1.6% between fiscal 2005 and 2008, video lottery receipts had been growing strongly, with annual growth averaging 17.8% over the same period. Both sources have been pressured by the national recession and combined declines for the two sources are projected to be 11.2% and 11.4% for fiscals 2009 and 2010, respectively. Video Lottery Terminal (VLT) revenue growth is projected to resume in fiscal 2011 by a strong 9.1% with less aggressive growth projected through fiscal 2015, while continued declines are projected for traditional lottery gaming.

The pledged net lottery proceeds exclude lottery prizes and expenses and $10 million dedicated annually to bonds issued for a light-rail project, though the final debt service payment for that obligation is due June 1, 2010. Net lottery revenues for fiscal 2009 were projected at $630.6 million, 5.5% below the $667.1 million in fiscal 2008, providing 7.1x coverage of fiscal 2009 lottery revenue bond debt service. Net revenues are projected to decline by an additional 14.4% for fiscal 2010, and combined with recent lottery revenue bond issuance, annual coverage is projected to decline to 4.4x. Projected fiscal 2010 revenues cover maximum annual debt service, which occurs in fiscal 2013, by 4.3x. Additional bonds must meet a test of 4x coverage, and additional lottery revenue bond issuance is contemplated in the near future. The state has authorized $274.3 million in lottery bonds for the current biennial period.

Additional information is available at www.fitchratings.com.

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