Iowa Fertilizer Company
Expected Sale Date
NEW YORK, Dec 10, 2012 -- Moody's Investors Service has assigned a P-1 rating to Iowa Finance Authority's
$1.194 billion Midwestern Disaster Area Revenue Bonds (Iowa Fertilizer Company
Project), Series 2012.
SUMMARY RATING RATIONALE
The rating is based on (i) the high quality investments of U.S. Treasury
Securities, sufficient to provide payment of purchase price (the principal
amount of the Series 2012 bonds, plus accrued interest thereon to the date fixed
for purchase) on the mandatory tender date resulting from the Original
Termination Date, expected to be on April 12, 2013 and (ii) the structure and
legal protections of the transaction. Moody's rating will expire on the Original
Termination Date. Series 2012 Bond proceeds, additional funds supplied by
Citigroup Global Markets Inc. both of which will be invested in U.S. Treasury
Securities, and investment earnings thereof demonstrate cash flow sufficiency to
pay the mandatory tender on the Original Termination Date.
DETAILED CREDIT DISCUSSION
The bonds are being issued to provide a loan to Iowa Fertilizer Company (the
borrower) to, after the Release Date, finance the cost of the development,
acquisition, and construction of a nitrogen fertilizer plant located in Lee
County, Iowa. On the Release Date, a Supplemental Indenture is entered into by
the Issuer and Trustee providing for the Series 2012 bonds to be secured by a
lien on the revenues and the borrower's interest in the fertilizer plant. This
issuance is made in connection with the Midwestern Disaster Area Bonds program
which were created by the Heartland Tax Relief Act of 2008 to provide assistance
to areas in the Midwest that suffered severe storms, tornadoes, and flooding
during the spring and summer of 2008.
At closing, bonds proceeds and additional funds supplied by Citigroup Global
Markets Inc. will be placed in the Bond Fund held by the Trustee and invested in
U.S. Treasury Securities - State and Local Government Series (SLGS) backed by
the full faith and credit of the United States of America. Citigroup Global
Markets Inc. will be advancing funds to the Trustee with its own funds and not
with the funds of any other person. Citigroup Global Markets Inc. is rated Baa2.
We believe that any risk that the funds will be subject to preference risk in 90
days is sufficiently remote at the current rating level.
The bonds are being issued in "escrow mode" for approximately four months up
until the Original Termination Date expected to be April 12, 2013. During this
time period, the bonds will be secured by the investments in the Bond Fund,
which may only be used only for payment of the purchase price, 100% of
principal and accrued interest, of the mandatory tender on Original
Termination Date. During this period neither the issuer or borrower or any other
person will have any access or security interest in the funds held by the
Trustee in the Bond Fund. They will be held separate and apart from all other
funds. During the escrow period, there can be no optional redemption or tender
of the bonds, and no notice needs to be given to bondholders for the mandatory
tender on the Original Termination Date.
On the Original Termination Date, the bonds are subject to mandatory tender for
purchase, and bondholders will be paid the principal and interest due on the
bonds. The purchase price will be paid from a combination of the proceeds of a
successful remarketing and from funds held in escrow by the Bond Trustee. If the
project is ready for construction, the bonds will be remarketed to a new set of
investors and a new supplemental indenture is entered into by the Issuer and
Trustee providing for the bonds to be secured by a lien on the
borrower's revenues and interests in the project. If the project is not
ready for construction, the bonds will either be cancelled and the bonds are
redeemed or the bonds will be remarketed to a new set of bondholders to a new
mandatory tender date. The rating applies only to the initial mandatory tender
on the Original Termination Date.
CASH FLOW SUFFICIENCY
Cash flow projections demonstrate that deposits and revenues from the Bond Fund
are sufficient to provide payment of purchase price on the mandatory tender date
resulting from the Original Termination Date. The sufficiency to provide full
and timely debt service payments on the Original Termination Date has been
verified by an independent certified public accounting firm. The verification
report was prepared by Causey Demgen & Moore P.C.
Moody's has examined the credit risks associated with the bonds in the event
that Iowa Fertilizer Company were to file for bankruptcy, because no assurance
can be made that the borrower will not become a debtor in a bankruptcy case
before the Original Termination Date. In assigning this rating, we have received
a legal opinion provided by Dorsey & Whitney, which addresses both the
automatic stay risk and the preference risk, which may prevent or delay payment
of debt service due to a potential bankruptcy of Iowa Fertilizer Company. The
opinion states that a court, following existing judicial precedents, would not
characterize the escrow proceeds as part of the trust estate, and thus will not
be subject to the automatic stay provisions under the Bankruptcy Code. The
opinion also states that even if all of the elements in establishing a
preference case could be established, there is a clear defense to any preference
allegation under the Bankruptcy Code.
What could change the rating - UP
What could change the rating - DOWN
- Downgrade of Citigroup Global Markets Inc.
This rating was assigned by evaluating factors believed to be relevant to the
credit profile such as i) the legal structure and pledged revenues, ii) cash
flows, if applicable, and iii) other factors believed to be applicable to the
assessment of the creditworthiness of the transaction, such as historical
contract performance or counterparty ratings. These attributes were compared
against other issues both within and outside of the transaction's core peer
group and the transaction's ratings are believed to be comparable to ratings
assigned to other issues of similar credit risk.
The Global Scale Credit Ratings on this press release that are issued by one of
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Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with
Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating
Agencies. Further information on the EU endorsement status and on the
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Public Finance Group
Moody's Investors Service
Senior Credit Officer
Public Finance Group
Moody's Investors Service
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MOODY'S ASSIGNS P-1 RATING TO IOWA FINANCE AUTHORITY'S $1.194 BILLION MIDWESTERN DISASTER AREA REVENUE BONDS (IOWA FERTILIZER COMPANY PROJECT), SERIES 2012
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