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Rating Update:

MOODY'S AFFIRMS P-1 RATING ASSIGNED TO STATE OF TENNESSEE'S $350 MILLION GO COMMERCIAL PAPER

29 Nov 2010

State
TN

Opinion

NEW YORK, Nov 29, 2010 -- Moody's has affirmed its P-1 rating on the State of Tennessee's Series A (Tax-Exempt) and Series B (Federally Taxable) general obligation commercial paper. The rating reflects the strong liquidity support provided to the notes through a standby commercial paper purchase agreement provided by the Tennessee Consolidated Retirement System (TCRS) and the substantial resources of TCRS available to support its commitment to purchase commercial paper, if required. The credit strength of the state of Tennessee (the state), whose general obligation bonds are rated Aaa with a stable outlook, is also considered in light of the automatic termination events outlined in the liquidity agreement.

COMMERCIAL PAPER PROGRAM WILL FUND CAPITAL INVESTMENTS; BONDS MAY BE ISSUED TO TAKE OUT CP

The issuance of commercial paper is part of an initial $250 million general obligation bond anticipation note program authorized by a March 6, 2000 resolution of the State Funding Board, which was amended and restated August 5, 2009 to allow for an increase in authorization to $350 million general obligation bond anticipation note. All notes issued under the program are direct general obligations of the state, bearing its full faith and credit pledge for payment.

The Series A and B commercial paper will fund various infrastructure improvements to state facilities. The commercial paper will have varying maturities of not more than 270 days from their respective dates of issuance and no later than the sixth business day prior to the expiration of the TCRS standby agreement. The state expects maturing commercial paper to be paid through the issuance of bonds or additional commercial paper.

AGREEMENT WITH TCRS PROVIDES LIQUIDITY

The state has entered into a Standby Commercial Paper Purchase Agreement with the TCRS under which the TCRS is obligated to purchase commercial paper that cannot otherwise be rolled over to new holders. Established in 1972, TCRS is the retirement system for public employees of Tennessee.

While payment of commercial paper principal and interest is backed by the state's general obligation pledge, the P-1 rating is derived from the strength of the agreement with TCRS and the ample resources TCRS has available to honor its obligations under the agreement. The state's long-term general obligation bond rating is also considered in the rating because of the automatic termination events incorporated in the liquidity agreement. The commercial paper resolution limits the total amount outstanding to $350 million. The standby agreement further limits the amount of notes that can mature on any one day to $100 million. Through the standby agreement, TCRS is required to purchase any notes that cannot otherwise be paid from rollover proceeds. Pursuant to the governing documents, should TCRS receive notice by 12:00 Noon, New York City time, from the Issuing and Paying Agent (Deutsche Bank Trust Company Americas) specifying the principal amount of commercial paper that the Dealer (Morgan Stanley & Co. Incorporated) was unable to sell to pay the principal of outstanding commercial paper maturing on the same day, TCRS will purchase such maturing commercial paper on that day by 4:00 P.M., New York City time.

The standby agreement expires on April 1, 2015. It may be terminated earlier by either the state or TCRS upon notice from either party. Such notice period must exceed the number of days to maturity of any outstanding commercial paper, and if terminated by TCRS, directs the Issuing and Paying Agent to immediately cease further issuance of commercial paper.

The rating also reflects the likelihood of premature termination of the standby agreement without payment of the commercial paper notes. Events which would cause the standby agreement to terminate without payment of the commercial paper notes are directly related to the credit quality of the state. The rating is also based on the state's obligation for the payment of interest on maturing notes, which is on parity with its general obligation long-term bonds. The automatic termination events include: (i) the state's failure to pay interest owing on the commercial paper; (ii) the issuance of the commercial paper resulting in a violation by the state of any law or state agreement, pursuant to a final administrative or judicial decision; (iii) the validity or enforceability of legal documents related to the commercial paper program being contested by the state or the state denying it has any or liability or obligation under these documents; (iv) the rating assigned to the commercial paper falling below P-3; (v) the state imposing a debt moratorium, debt restructuring, debt adjustment or comparable restriction on debt service repayment related to any state obligations, or taking any action to refuse to pay its debts or comply with its lawful obligations with regard to the commercial paper, or any other general obligation notes or bonds issued by the state; or (vi) bankruptcy or insolvency of the state.

The amount of liquid investments available to TCRS to meet obligations under the agreement is ample. Based on our modified approach as outlined in the Moody's rating methodology of November 2006 entitled "Variable Rate Debt Instruments Supported by an Issuer's Own Liquidity", liquid investments available to TCRS to meet obligations under the agreement provide over twenty times coverage of the total amount of commercial paper authorized to be sold.

MOST RECENT RATING ACTION; METHODOLOGY

The last rating action with respect to Tennessee General Obligation Commercial Paper Series A (Tax-Exempt) and Series B (Federally Taxable) was on August 12, 2009, when the P-1 rating was affirmed.

The principal methodology used in rating this issue was Moody's Variable Rate Debt Instruments Supported By an Issuer's Own Liquidity, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issue can also be found in the Credit Policy & Methodologies directory.

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

Maria Coritsidis
Analyst
Public Finance Group
Moody's Investors Service

Julius Vizner
Backup Analyst
Public Finance Group
Moody's Investors Service

Edith Behr
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


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MOODY'S AFFIRMS P-1 RATING ASSIGNED TO STATE OF TENNESSEE'S $350 MILLION GO COMMERCIAL PAPER
No Related Data.
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