Dunkin’ Donuts Center revenue bonds rated AA-

Fitch Ratings assigned Thursday an underlying ‘AA-‘ rating to the R.I. Convention Center Authority’s $92.5 million civic center revenue bonds, 2006 series A. The bonds are being issued under a November 2005 resolution to fund the acquisition and renovation of the Dunkin’ Donuts Center, located adjacent to the convention center in Providence.

The 2006 series A bonds will be insured by Financial Security Assurance Inc., whose insurer financial strength is rated ‘AAA’ by Fitch. The bonds are expected by negotiation through a syndicate led by Merrill Lynch & Co. the week of May 1.

Security for the center revenue bonds derives from lease rental payments made by the state, subject to annual appropriation. The rental payments are absolute and unconditional, not subject to abatement and not dependent on state occupancy or use of the leased facility.

Additionally pledged is a first mortgage on the facility, and a debt service reserve fund. The state expects to make one appropriation to the authority sufficient to cover debt service on both the civic center revenue bonds and the authority’s $202 million outstanding revenue bonds, which have been issued under a 1991 resolution. With payment requiring appropriation, the ‘AA-‘ rating is based on the credit quality of the state of Rhode Island (general obligations rated ‘AA’ by Fitch).

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The authority was created in 1987 to construct, manage and operate a convention center and related facilities in downtown Providence. Construction was completed in 1993-94. In 2005, the state authorized $92.5 million in authority bonds to fund the acquisition and renovation of the Dunkin’ Donuts Center facility, which was owned by the city of Providence. This is expected to enhance convention center operations. The facilities are leased to the state and the authority manages them under sublease agreements. The state makes lease payments in an amount sufficient to pay, among other things, the operating expenses of the authority (excluding depreciation) and the debt service on the authority’s obligations.

Rhode Island’s ‘AA’ GO bond rating reflects a history of action to protect its debt and financial position. The economy has grown and diversified away from manufacturing. The state has added jobs in every year since 1992 and outperformed both the U.S. and neighboring states in the recent recession. Growth has lagged in the recovery, with 2005 employment growth of 0.6 percent compared to the U.S. increase of 1.5 percent. March 2006 employment was 0.9 percent above the March 2005 level, below 1.6 percent for the nation. Personal income per capita for 2005 was 105 percent of the U.S., ranking it 13th of the states.

Rhode Island’s fiscal 2006 budget eliminated a projected $164 million deficit through a combination of revenue enhancements, opening surplus and expenditure reductions. The state’s economic performance in fiscal 2006 has been consistent with state forecasts; however, revenue results have been below estimates for most of the year, despite a downward revision to the revenue forecast in November.

In a change from prior months, March 2006 year-to-date revenues were up 3.1 percent, above the 2.5 percent revised estimate, with underperformance in the personal income tax offset by strong corporate tax collections. The year-end general revenue surplus estimate is $14.3 million. Reserves remain at the statutory maximum of 3 percent of revenues. The revenue forecast will be reviewed for possible revision in May.

The governor proposed a budget that addresses an estimated $77 million current-year shortfall and a $222 million projected fiscal 2007 gap through spending cuts in welfare, health care and state employee benefits, as well as one-time revenues. The budget does not include any broad-based tax increases or cuts.

Rhode Island’s debt burden, which peaked at 8.5 percent of personal income in 1994, now equals 5.3 percent of personal income. Net tax-supported debt totals about $2 billion. The funding level of the state employee pension system has dropped to 59.4 percent at June 30, 2004; the state passed significant pension reform in the 2005 session.

The 2006 series A bonds will be due May 15, 2008-2035 and are callable at any time.

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