Hawaii Outlook To Stable From Positive On Reduced Revenue And Slightly Weaker Economic Projections

News Release from Standard and Poors

SAN FRANCISCO (Standard & Poor's) Oct. 22, 2014--Standard & Poor's Ratings Services has revised the outlook on all of Hawaii's debt to stable. In addition, we assigned our 'AA' long-term rating to the state's following planned bond issues:

$575 million series 2014 EO general obligation (GO) bonds;
$503.3 million series 2014 EP GO refunding bonds; and
$25 million series 2014 EQ taxable GO bonds. 

At the same time, we affirmed our 'AA' long-term rating and underlying rating (SPUR) on Hawaii's GO bonds and our 'AA-' long-term rating on the state's certificates of participation (COPs), reflecting our view of appropriation risk.

The outlook revision reflects a change in circumstances that we believe reduce the likelihood we will raise our rating within a one-to-two year timeframe. "One such change is the strengthening U.S. dollar, which makes Hawaii a more expensive destination for tourists with international origins," said Standard & Poor's credit analyst Gabriel Petek. "Other signs of potential softening are reflected in Hawaii's arrivals, which dipped during the final quarter of 2013 and the first quarter of this year after 17 quarters of growth."

The state's construction industry, which we anticipate will continue increasing in importance to the state economy, has shown some mixed signals in recent quarters. Reflecting these developments, state tax revenues underperformed what the state's Council on Revenues had forecast for fiscal 2014 (although, in our view, not by as much as officially reported). In addition, the state's fiscal outlook -- while still strong -- is less robust than last year at this time.

"Finally, a change in administration that will take place when a new governor is inaugurated on Dec. 1, 2014 introduces some uncertainty with regard to the state's budget management. The current administration built its financial plan around a policy objective to maintain combined ending and rainy day fund balances of 10% or more of general fund revenues. We have viewed this as favorable for the state's credit outlook, but given that the policy was informal, we make no assumption about whether a new administration will adhere to this," added Mr. Petek.

Notwithstanding our view that economic and revenue trends could moderate relative to prior performance and forecasts, actual performance has remained strong. In fact, total visitor arrivals set records in 2012, 2013, and may do so again in 2014. Likewise, the state still anticipates a healthy ending and rainy day fund balance, albeit at somewhat lower levels than before.

---30---