Moody's Raises Massachusetts General Obligations To A1 1994 Series A Notes Rated Mig1, Government Land Bank Bonds Rated A1

Business Wire, Nov 15, 1994

NEW YORK--(BUSINESS WIRE)--Nov. 14, 1994--Moody's Investors Service Monday raised to A1 (from A) the rating assigned to the Commonwealth of Massachusetts general obligation bonds.

The rating change occurred following a review of Commonwealth economic and financial performance of recent years, and in connection with the Commonwealth's offering November 16 of $200 million general obligation bonds, consolidated loan of 1994, series C.

At the same time, Moody's assigned a MIG1 rating to the Commonwealth's $240 million general obligation notes, 1994 series A, and a rating of A1 to the Massachusetts Government Land Bank taxable bonds, 1994 series; both of these issues will also be offered November 16.

Fiscal Control Strengthens Credit

Spending discipline and adherence to reasonable revenue assumptions have produced for the Commonwealth, through fiscal 1994, three years of balanced financial operations, an improving financial position, and greatly reduced reliance on borrowing for operations.

This restoration of fiscal control, the beginnings of which were recognized two years ago when Moody's raised Massachusetts' general obligation bond rating from Baa to A, has reduced financial vulnerability and strengthened the Commonwealth's credit standing.

The general obligation bond rating is now raised to A1. This above average credit position is based on:

. a record in recent years of restoring fiscal control in the face of severe economic adversity, and

. an economy which, even after the stress of the last recession, retains diverse sources of strength and generates high personal incomes.

The A1 rating also acknowledges that credit strengths are tempered by:

. the inflexibility dictated by a heavy debt load (one of the highest among the the states) and other substantial fixed costs, particularly pension contributions and transit subsidies, and

. the expectation that strong economic performance of recent months will be reduced to a less impressive, but still favorable pace as higher interest rates, defense procurement cutbacks and health care industry restructuring rein in the pace of economic growth.

A list of other bonds affected by this rating change, because they are either guaranteed by the Commonwealth or reliant on a pledge of Commonwealth payment, will follow separately.

General Obligation Notes Rated MIG1

The Commonwealth's offering of $240 million general obligation notes, 1994 series A, has been rated MIG1. A general obligation pledge of the Commonwealth secures the payment of these notes, which are issued to reimburse the Commonwealth for subsidy payments to the Massachusetts Bay Transportation Authority.

Moody's continues to note that the complex debt structure created to cover MBTA operating losses makes refinancings necessary for retirement of notes issued by both the MBTA and the Commonwealth. This feature introduces potential market risk.

But the risk is offset in the current instance by the notes' maturing within the current fiscal year, for which a budget has been in place for some time; by projections based on the current budget and on reasonable assumptions which indicate that ample cash balances will be available for payment of these notes when due, even without a refinancing; and by actual cash flow performance to date consistent with projections.

Government Land Bank Bonds Rated A1

The Massachusetts Government Land Bank offering of taxable bonds, 1994 series, is rated A1. The Commonwealth of Massachusetts has contracted to provide five annual payments of $6 million per year, beginning fiscal 1995, as contract assistance payments for debt service on the Land Bank bonds.

Aggregate debt service requirements of the bonds may not exceed $6 million per year, and the Land Bank will award the bonds to the bidder offering the maximum sale proceeds, assumed to be roughly $25 million.

Payment of the Land Bank bonds is not a general obligation of the Commonwealth, but the obligation of the Commonwealth to pay contract assistance is a general obligation, to which its full faith and credit are pledged.

While the Commonwealth's tax revenue growth limit does not exclude contract assistance payments from the limit's scope, the full faith and credit pledge provides a credit position equal to that of the Commonwealth's own direct debt. -0- Commonwealth of Massachusetts general obligation bonds outstanding, including current offering: $ 8,957,320,000

Commonwealth of Massachusetts net tax-supported debt, including current offerings: $12,534,881,000

CONTACT: Moody's Investor Service, New York

              Steven Hochman, Vice President/Assistant Director,
               State Ratings, 212/553-0338