Fitch Rates Oklahoma Dept. of Transp. GANs 'A+'.

NEW YORK -- Fitch Ratings assigns an 'A+' rating to approximately $97.2 million Oklahoma Department of Transportation (ODOT) grant anticipation notes (GANs), series 2007A. The notes are expected to sell through negotiation by a UBS Investment Bank-led syndicate on or about March 14. Note proceeds will finance a portion of the construction costs for certain qualified federal aid transportation projects and pay the cost of issuance. The notes mature serially from 2007-2022.

In addition, Fitch affirms the 'A+' rating on $85.9 million in outstanding GANs. The Rating Outlook is Stable.

Including the series 2007A notes, $193.6 million out of an expected $500 million in notes has been issued as part of ODOT's plan to finance $1.2 billion in statewide highway projects located within corridors of economic significance. Project costs not financed by the notes are expected to be funded with pay-as-you-go sources consisting of federal transportation funds and state resources.

The notes, which are authorized pursuant to state statute, are payable from all legally available federal transportation funds. Similar to some other state transportation grant anticipation programs leveraging federal transportation funds, advance segregation for note payments is not on a cash basis but through a set-aside of obligation authority for federal transportation funds.

Fitch's 'A+' rating is based on the long established track record of federal transportation funding, a strong additional notes test of 3.0 times (x) maximum annual note payments, and ODOT's covenant that in each federal fiscal year it will request obligation of federal transportation funds for that year's note payments and the first payment for the succeeding year before obligating federal transportation funds for any other purposes. Similar to some other state transportation grant anticipation debt programs, these notes do not have the additional security of pledged or legally available revenues from state sources.

A risk for these notes is the potential for significant changes in federal transportation funding policy with each new authorization period. Interruption in the flow of federal transportation funding is highly unlikely given the broad-based political support for the program. However, the most recent multi-year reauthorization of the federal surface transportation program was significantly delayed. The Transportation Equity Act for the 21st Century (TEA-21) expired on Sept. 30, 2003 without a successor multi-year authorization, although 12 short-term extensions were passed. The Safe, Accountable, Flexible, and Efficient Transportation Equity Act - A Legacy for Users (SAFETEA-LU) took nearly two years to enact.

The 15-year note maturity for this series and a similar maturity profile for the outstanding and expected issuances expose noteholders to additional reauthorization risk. Assuming the continued practice of six-year federal transportation authorization periods, the ODOT notes will typically span three such periods, while similar debt programs with shorter maturities will cover up to two authorization periods. In the near term, federal transportation funding growth may be less than authorized levels under SAFETEA-LU due to highway trust fund resource constraints.

Potential federal transportation funding constraints and reauthorization risk are sufficiently hedged, consistent with Fitch's 'A+' rating, by very strong note payment coverage of nearly 8x against federal fiscal 2007 legally available federal transportation funds, assuming the full $500 million issuance. However, additional notes may be issued to meet future transportation needs. Consequently, though coverage may be lower, it is still expected to be strong given the protections provided by the additional notes test.

ODOT's SAFETEA-LU federal transportation funding level represents an approximately 40% increase over TEA-21 for the federal fiscal 2004-2009 period. However, given continuing federal budget deficits and national security concerns, coupled with the possibility of changing federal priorities and/or continuing highway trust fund resource constraints, there is no guarantee that such federal transportation funding growth will continue during subsequent reauthorization periods. Oklahoma may be less susceptible to changes in federal transportation funding policy given its status as a donor state, where it receives about $0.92 in federal surface transportation funds for each $1 the state contributes in federal motor fuel tax revenues.

ODOT is responsible for the planning, construction, operation, maintenance, and coordination of the state's multimodal transportation network, including a 12,526-mile statewide highway network. The Oklahoma Transportation Commission, whose eight members are appointed by the governor with the consent of the state senate, is an advisory, administrative, and policymaking body for ODOT.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.