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Fitch Upgrades Milwaukee Redevelopment Authority, WI Bonds to 'AA'; Outlook Stable.

New York: Fitch Ratings has upgraded to 'AA' from 'AA-' the following Milwaukee Redevelopment Authority, Wisconsin (the authority) ratings:

--$146.6 million (current accreted value) Milwaukee Redevelopment Authority pension funding (taxable) bonds, series 2003C and 2003D.

The Rating Outlook is Stable.


Redevelopment Authority bonds are secured by loan payments from Milwaukee Public Schools (MPS) to Milwaukee. The city is directed to use any money in the school operations fund to make the payment to the trustee if the payment is not made by MPS. If payments are not made to the trustee, the trustee is directed to intercept state aid payments.


The program rating upgrade to 'AA' from 'AA-' results from the recent upgrade of the state of Wisconsin's (the state's) Issuer Default Rating (IDR) to 'AA+' from 'AA'. The authority's bonds are rated one notch below the state's IDR reflecting the intercept mechanism.

Economic Resource Base


STATE INTERCEPT OBLIGATION: The rating is based on the state's obligation to intercept school district aid in a timely manner as needed to pay debt service. Administrative, structural and legal protections provide credit enhancement for qualifying school district debt at a level one notch below the state's own 'AA+' IDR.

TIMELY PAYMENT OF DEBT SERVICE: Program mechanics allow sufficient time for state funds to be made available to pay debt service by the debt service payment date.


Change in State Rating: An upgrade in the state's rating would result in an upgrade to the redevelopment authority bonds, which carry a rating one-notch below the state's 'AA+' IDR. Conversely, a decrease in the state's rating would result in a downgrade.

Change in School Funding Landscape: Although not anticipated, a notable shift in the level or timing of state funding for school districts could negatively affect the redevelopment authority bond rating.


Redevelopment Authority Bond Structure

The redevelopment authority bonds carry a rating one notch below the state of Wisconsin's 'AA+' IDR reflecting the intercept mechanism.

Primary security for the redevelopment authority bonds is provided by the state aid intercept mechanism, crafted especially for the bonds. This agreement authorizes and directs the trustee, in case of non-payment by MPS, to intercept scheduled state aid payments sufficient to prevent a default. Regardless of whether Milwaukee Public Schools (MPS) has appropriated the loan payment or not, the city makes the loan payments on Jan. 1 and Aug. 1 from money on deposit in the school operations fund.

If 45 days prior to the scheduled state aid disbursement dates which immediately precede the debt service payment dates, the required money is not on deposit, the trustee will notify MPS, the state Department of Public Instruction (DPI) and the state Department of Administration (DOA) of the deficiency. DPI will then divert that amount to the trustee, on the next regularly scheduled state aid payment date, to avoid a payment default on the bonds.

The March 2016 state equalization aid payment, which precedes the April 1 debt service date, provided strong 7.6x coverage of projected maximum semiannual debt service for series 2003C and 2003D bonds. Since the state aid amounts are subject to appropriation by the state, a material change in the timing or amount of state equalization aid payments could change the credit profile of the bonds. Fitch does not anticipate such a material change, given the state's ongoing commitment to education funding.

For further information regarding the state's IDR, please see, "Fitch Upgrades Wisconsin's GOs to 'AA+'; Outlook Stable," dated Oct. 19, 2017.
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Geographic Code:1U3WI
Date:Jan 25, 2018
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