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Ratings Service Reduces SBA Bond Outlook

December 5, 2013
The Intelligencer / Wheeling News-Register

CHARLESTON (AP) - West Virginia's declining gambling revenue could affect the rating of the School Building Authority's excess lottery revenue bonds.

Standard & Poor's Rating Services downgraded its outlook for the bonds on Tuesday to negative. The ratings service said there's a one-in-three chance that it could lower the bonds' rating from AAA within two years because of declines in gambling revenue.

The authority uses about $19 million from the West Virginia Lottery's Excess Lottery Fund annually to make payments on the bonds. It has about $260 million outstanding in bonds issued to fund school improvements and construction.

Gambling revenue from the state's four racetrack casinos has been hurt by competition from casinos in Ohio, Pennsylvania and Maryland. Much of the Excess Lottery Fund's revenue, which helps pay off bonds at several state agencies, is generated by racetrack video lottery.

"The outlook revision reflects declines in revenue and the potential for weaker debt service coverage in the future due to increased competition from neighboring states," Standard and Poor's analyst John Sugden said.

Analysts noted the excess lottery revenue stream provides about 4.7 times the maximum annual debt service required to fund the authority's bonds. To maintain a top AAA rating, analysts prefer that ration remain at or above four times the debt service.

The state projects that it will have 4.1 times the amount of revenue to cover the debt service payments in its 2014 and 2015 fiscal years. But analysts said the state could fall below the preferred level if revenue comes in worse than expected.

"Management's role in determining the size and timing of future bond issuance will be an increasingly important credit factor, especially if competition results in significant revenue declines," Standard and Poor's said.

Gov. Earl Ray Tomblin's spokeswoman, Amy Shuler Goodwin said the administration was committed to maintaining the SBA's AAA bond rating.

"While these long-term financial challenges are not new for many states across the country, this administration continues to work on strategies to deal with these ongoing budget constraints," she said.

 
 

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