Fitch Rates Alaska Municipal Bond Bank Authority's $5.3MM 2004 Series B Revs 'A'.

SAN FRANCISCO -- Fitch rates the Alaska Municipal Bond Bank Authority's (the authority) $5,300,000 revenue bonds, 2004 series B 'A'. The bonds will be sold competitively on or about Aug. 25. The Rating Outlook is Stable. The financial advisor is Western Financial Group, LLC.

The rating reflects the bonds' several security layers, the strongest of which is the state's ability to replenish a debt service reserve fund and to withhold state aid payments made to the Municipality of Anchorage if it defaults on its debt service payments to the authority. The rating also is based on the authority's strong debt repayment history.

The authority will use bond proceeds to purchase bonds issued by the Municipality of Anchorage, which will in turn use the receipts to repair the roof of the Anchorage Performing Arts Center (PAC). The bonds are secured initially by Anchorage's surcharge on tickets sold at the PAC. The municipality estimates annual revenues to just cover the expected $342,000 in debt service. Bond security also includes a debt service reserve at the authority level, equaling the lesser of 10% of bond par, 125% of average annual debt service, or maximum annual debt service. The authority's reserve is available if the municipality's funds are insufficient to pay debt service. A draw on the authority reserve will be replenished by withholding state aid provided to the municipality or from other state funds subject to optional appropriation by the Legislature. Unlike most other authority revenue bond issues, Anchorage is not providing a debt service reserve for its bond issue. Rather, debt service will be funded about six months in advance.

The authority also can use its custodian account in the event that the other security provisions fail to yield sufficient funds. However, these funds are not pledged as part of the bond security and are vulnerable to reduction. The account held $14.2 million at May 31, 2004, down significantly from $20.2 million two years ago. The decrease results from the authority's use of these funds to establish debt service reserves on recent issues. The legislature can appropriate the custodian account for any state use, as it did for the first time in history in fiscal 2003 and 2004, taking $775,000 in interest earnings in each year.

The Anchorage Performing Arts Center was built in 1988 and is owned by the municipality. The PAC receives a $1.2 million annual operating subsidy from the Anchorage's general fund. The municipality is pledging its $2.50 per ticket surcharge to repay its obligation to the authority. Projected collections provide about 1.0x coverage of Anchorage's payment obligation, which equals debt service on these bonds. While coverage is low, ticket sales have been volatile, and PAC operations require general fund support, debt service is covered overwhelmingly by Anchorage's state aid payments subject to the intercept. These amounts are estimated to total $254.5 million in fiscal 2004, including $196.5 million in education aid.