$44M OF DEBT AFFECTED. LONG-TERM JDA RATING IS BASED ON CREDIT QUALITY OF SOUTH JERSEY TRANSPORTATION AUTHORITY'S PLEDGED REVENUES AND LOC PROVIDED BY WELLS FARGO BANK, N.A.
Fully Supported
NJ
Opinion
NEW YORK, Apr 1, 2011 -- Moody's Investors Service has affirmed Aa1/VMIG 1 rating of South
Jersey Transportation Authority Variable Rate Transportation System Revenue
Bonds, 2009 Series A-3 (the Bonds) in conjunction with the substitution of the
current letter of credit supporting the Bonds provided by Bank of America, N.A.
with an alternate irrevocable direct-pay letter of credit (LOC) provided by
Wells Fargo Bank, National Association. (the Bank). The new LOC will become
effective on April 1, 2011.
SUMMARY RATING RATIONALE
The long-term rating continue to be based on a joint default analysis (JDA)
which reflects Moody's approach to rating jointly supported transactions. The
JDA rating is based upon the long-term rating of the Bank as provider of the
letter of credit; the underlying rating of the Bonds; and the structure and
legal protections of the transaction which ensures timely debt service payments
to investors. The timely payment of purchase price is reflected in the
short-term rating of the Bonds. The short-term rating of the Bonds is based upon
the short-term rating of the Bank as provider of the letter of credit.
Wells Fargo Bank, National Association is currently rated Aa2 for long-term
other senior obligations (OSO) and Prime-1 for short-term OSO. Moody's
downgraded the underlying rating on the Bonds to Baa1 from A3 on March 16, 2011.
Since a loss to investors would occur if both the Bank and the South
Jersey Transportation Authority (SJTA) default in payment, Moody's has assigned
the long-term portion of the rating based upon the joint probability of default
by both parties. In determining the joint probability of default, Moody's
considers the level of default dependence between the Bank and the revenue
pledge of SJTA (the Security). Moody's has determined that there is a low level
of default dependence between the Bank and the Security. As a result, the
joint probability of default for the Bank and the Security results in a
credit risk consistent with a JDA rating of Aa1 for the Bonds.
DETAILED CREDIT DISCUSSION
Interest Rate Modes and Payment
The Bonds will continue to bear interest at a weekly rate and pay interest on
the first business date of each month. The Bonds may be converted, in whole, to
bear interest at a daily rate, R-Float, commercial paper rate, indexed, stepped
coupon, term or long term rate. The Bonds will be subject to mandatory
tender upon any conversion. The JDA and short-term ratings apply to Bonds
bearing interest in the weekly rate only.
Additional Bonds
The series resolution does not permit the issuance of additional bonds.
Flow of Funds
The trustee is instructed to draw under the LOC for principal or interest in
accordance with its terms. The trustee is also instructed to draw under the LOC
in accordance with its terms, for purchase price, to the extent remarketing
proceeds received are insufficient. The Bonds which are purchased by the Bank
due to a failed remarketing are held by the trustee and will not be released
until the trustee has received confirmation from the Bank stating that the
letter of credit has been reinstated in full.
Letters of Credit
The LOC is sized for full principal plus 44 days of interest at the maximum rate
applicable to the Bonds (15%) and will provide coverage for the Bonds while they
bear interest in the weekly rate mode only.
Draws on the Letter of Credit
Conforming draws for principal and interest presented to the Bank by 4:00 p.m.,
New York City time, on a business day, will be honored by the Bank by 2:30 p.m.,
on the next business day. Conforming draws for purchase price presented to the
Bank by 11:00 a.m., New York City time, on a business day, will be honored by
the Bank by 2:00 p.m., the same business day.
Reinstatement of Interest Draws
Draws made under the LOC for interest shall be automatically reinstated at the
opening of business on the fifth (5th) calendar day following the date such
drawing is honored by the Bank unless the trustee shall have received a notice
from the Bank by the close of business on the fourth (4th) calendar day from
such date that the Bank has not been reimbursed in full for any such drawing or
any other event of default has occurred and as a consequence thereof the letter
of credit will not be reinstated and the Bank shall direct the trustee to
accelerate or cause a mandatory tender of the Bonds. The trustee shall, on the
second (2nd) business day following receipt of such notice draw on the LOC to
affect a mandatory tender or acceleration of the Bonds. The interest shall cease
to accrue on the date of mandatory tender or acceleration of the Bonds.
Reimbursement Agreement Defaults
The Bank may, at its option, send written notice to the trustee that an event of
default under the reimbursement agreement has occurred with direction to affect
either a mandatory tender or an acceleration of the Bonds. The trustee shall, on
the second (2nd) business day following receipt of such notice draw on the LOC
to affect a mandatory tender or acceleration of the Bonds. The interest shall
cease to accrue on the date of mandatory tender or acceleration of the Bonds.
Expiration / Termination of the Letter of Credit
The LOC shall terminate upon the earliest to occur of: (a) the date of Bank's
receipt of the notice from trustee stating that: (i) no Bonds remain
outstanding, (ii) all drawings have been made and honored, or (iii) a substitute
letter of credit has been issued ; (b) fifteen (15) days following the date on
which all of the Bonds bear interest at a rate other than weekly; (c) fifteen
(15) days after trustee's receipt of notice from the Bank that event of default
under the reimbursement agreement has occurred with direction to accelerate or
cause a mandatory tender; (d) the day on which an acceleration drawing or
maturity drawing is honored by the Bank; or (e) the stated expiration
date, April 1, 2013.
Substitution
The Bonds will be subject to mandatory tender on the business day
preceding substitution of the letter of credit. Draws for purchase price upon
the substitution of the letter of credit will be made under the existing letter
of credit and the trustee will not surrender the existing letter of credit until
the mandatory tender drawing has been honored.
Optional Tenders
Bondholders may optionally tender their Bonds during the weekly mode on any
business day with five business days prior notice to the tender agent and
remarketing agent.
Mandatory Purchases
The Bonds are subject to mandatory tender on: (a) each interest rate conversion
date; (b) the date at the end of commercial paper or term rate interest period;
(c) the second business day immediately before the letter of credit expiration
date; (d) the business day preceding substitution of the letter of credit; and
(e) the second business day following trustee's receipt of notice from the
bank stating that the Bonds shall be subject to mandatory tender due to an event
of default under the reimbursement agreement.
Mandatory Redemptions
The Bonds are subject to mandatory sinking fund redemption.
WHAT COULD MAKE THE RATING GO UP
Long-Term: the long-term rating on the Bonds could be upgraded if the long-term
rating of the Bank or the long-term rating of the Security was upgraded.
Short-Term: N/A
WHAT COULD MAKE THE RATING GO DOWN
Long-Term: the long-term rating on the Bonds could be lowered if the long term
rating of the Bank or the long-term rating of the underlying Bonds was
downgraded, or if there is an increase in the level of default dependence
between the Bank and the Security.
Short-Term: the short-term rating on the Bonds could be lowered if the
short-term rating of the Bank was downgraded.
PRINCIPAL METHODOLOGY USED
The principal methodologies used in this rating were Applying Global
Joint Default Analysis to Letter of Credit Backed Transactions in the
U.S. public Finance Sector published in October 2010 and Moody's
Rating Methodology for Letter of Credit Supported Transactions published in
August 2005.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following: parties
involved in the ratings and public information.
Moody's Investors Service considers the quality of information available on the
issuer or obligation satisfactory for the purposes of maintaining a credit
rating.
Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.
Analysts
Jacek Stolarz
Analyst
Public Finance Group
Moody's Investors Service
David A. Parsons
Senior Credit Officer
Public Finance Group
Moody's Investors Service
Contacts
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA
MOODY'S AFFIRMS Aa1/VMIG 1 LETTER OF CREDIT-BACKED RATING OF SOUTH JERSEY TRANSPORTATION AUTHORITY VARIABLE RATE TRANSPORTATION SYSTEM REVENUE BONDS, 2009 SERIES A-3
