$16.555 MILLION OF DEBT AFFECTED. SUBSTITUTE LETTER OF CREDIT PROVIDED BY TD BANK, N.A.
NEW YORK, Sep 1, 2011 -- Moody's Investors Service has affirmed the Aa1/VMIG 1 the letter of
credit backed rating assigned to the Simmons College Bonds, Series 2008 (the
"Bonds") in conjunction with the substitution of the current letter of credit
securing the Bonds provided by JPMorgan Chase Bank, N.A. with a new direct-pay
letter of credit ("LOC") provided by TD Bank, N.A. (the "Bank") effective
September 1, 2011.
SUMMARY RATING RATIONALE
The long-term rating is based on a joint default analysis ("JDA") which reflects
Moody's approach to rating jointly supported transactions. The JDA ratings are
based upon the long term rating of the Bank as the provider of the substitute
LOC; 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 Bond is based upon the short-term rating
of the Bank as providers of the LOC. Moody's currently rates the Bank Aa2 for
long-term other senior obligations ("OSO") and P-1 for short-term OSO.
Moody's currently maintains an underlying rating of Baa1 for Simmons College
(the "College"). Please see the rating update report dated August 5, 2011 for
more information on the underlying rating of the Bonds.
Since a loss to investors would occur only if both the Bank and the
College default in payment, Moody's has assigned the long-term portions of the
ratings 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 College. Moody's has determined that
there is a low level of default dependence between each of the Bank and the
College. As a result, the joint probability of default for the Bank and the
College, results in a credit risk consistent with a JDA rating of Aa1 for the
DETAILED CREDIT DISCUSSION
Interest Rate Modes and Payment
The Bonds will continue to bear interest in a weekly rate mode and interest will
be paid on the first business day of each month. The trust indenture permits the
conversion of the interest rate of the Bonds, in whole or in part, to a term or
fixed mode. The Bonds will be subject to mandatory tender upon conversion of
interest rate mode. Moody's JDA and short term ratings only apply to the Bonds
while bearing interest in the weekly interest rate.
The trust indenture does not allow the issuance of additional Series 2008 Bonds.
Flow of Funds
The trustee is instructed to draw under the LOC by 4:00 p.m., Eastern time, on
the business day prior to each principal and/or interest payment date in order
to receive timely payment. The trustee is also instructed to draw under the LOC
by 10:00 a.m., Eastern time, on business day each purchase date based on
notice of remarketing proceeds received by the remarketing agent. To the extent
remarketing proceeds delivered to the trustee are insufficient, the trustee is
instructed to make a second drawing on the LOC by 11:30 a.m., Eastern time on
the purchase date.
In the event that the Bank wrongfully fails to honor any draw under the letter
of credit, the trustee is instructed to apply College funds on deposit in order
to make such payments to bondholders in a full and timely manner.
Bonds that 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 LOC has been reinstated for the full amount of
the purchase price drawn for such Bonds.
Direct Pay Letter of Credit
The LOC provided by the Bank is sized for the full principal amount plus 45 days
of interest at the maximum interest rate of 12%. The LOC provides sufficient
coverage for the Bonds while they bear interest in the weekly rate mode.
Draws on Letter of Credit
Conforming draws under the LOC for principal and interest received by the Bank
at or prior to 4:00 p.m., Eastern time, on a business day, will be honored by
1:00 p.m., Eastern time, on the following business day. Conforming draws for
purchase price received by the Bank by 11:30 a.m., Eastern time, on a business
day, will be honored by the Bank by 2:30 p.m., Eastern time, on the
same business day.
Reinstatement of Interest Draws
Draws made under the LOC for interest shall be automatically reinstated on the
11th day following the Bank's honoring any such interest drawing unless the
trustee receives notice from the Bank of an event of default under the
reimbursement agreement and the non-reinstatement of the LOC by 12:00 p.m..,
Eastern Time, on the tenth (10th) day following such a drawing. Upon receipt of
such notice, the trustee is directed to immediately accelerate the maturity of
the Bonds. Interest ceases to accrue at such declaration.
Substitution of the LOC is permitted and requires a mandatory tender of the
Bonds on the interest payment date prior to the date the substitute LOC will go
into effect, unless the trustee receives written confirmation that the rating on
the Bonds will not be reduced or withdrawn based on the substitution of the LOC
. On such mandatory tender date, the trustee shall draw under the existing LOC
for full purchase price of the corresponding Bonds, to the extent remarketing
proceeds are not available, and shall not surrender the existing LOC to the
Bank until after all draws have been honored.
Reimbursement Agreement Defaults
The Bank may deliver written notice to the trustee stating that an event of
default under the reimbursement agreement has occurred and is continuing and
directing the acceleration of the Bonds. The trustee shall immediately
accelerate the maturity of the Bonds and draw on the LOC. Interest will cease to
accrue on the date of such declaration.
Expiration / Termination of the Letter of Credit
Each LOC expires upon the earliest to occur of: (1) the Bank's honoring of the
final drawing under the LOC; (2) on the Bank's receipt of the trustee's
certification that a substitute LOC has gone into effect; (3) on the business
day following the Bank's receipt of notification from the trustee that all the
Bonds have been converted to a rate mode other than weekly; or (4) September
1, 2016, the stated termination date.
While the Bonds are in the weekly rate mode, bondholders may optionally tender
their Bonds on any business day, by providing written notice to the tender agent
and the remarketing agent at least seven days in advance. Bondholders tendering
their Bonds will receive purchase price equal to the par amount of the Bonds
tendered plus accrued interest to the tender date.
The Bonds are subject to mandatory tender on the following dates: (1) the
interest payment date prior to the expiration or termination of the LOC; (2) the
interest payment date prior to the substitution of the LOC unless the trustee
receives rating confirmation; and (3) on any conversion of interest rate date.
The Bonds are subject to mandatory sinking fund redemptions.
WHAT COULD CHANGE THE RATING-UP
Long - Term: The long-term ratings on the Bonds could be raised if the
long-term OSO rating of the Bank was upgraded or the long-term underlying rating
of the Bonds was upgraded.
Short-Term: not applicable
WHAT COULD CHANGE THE RATING - DOWN
Long-Term: The long-term ratings on the Bonds could be lowered if the long-term
OSO rating of the Bank was downgraded, or if there is an increase in the level
of default dependence between the Bank and the College.
Short-Term: The short-term OSO rating on the Bonds could be lowered if the
short-term rating of the Bank was downgraded.
Trustee: The Bank of New York Mellon Trust Company, N.A.
Remarketing Agent: Barclays Capital
The last rating action on the Bonds took place on August 3, 2011 when the Aa1
long term rating was confirmed.
PRINCIPAL METHODOLOGIES 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 Methodology for
Rating U.S. Public Finance Transactions Based on the Credit Substitution
Approach published in August 2009.
Moody's adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Public Finance Group
Moody's Investors Service
Senior Credit Officer
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S AFFIRMS THE Aa1/VMIG 1 LETTER OF CREDIT BACKED RATINGS OF THE SIMMONS COLLEGE BONDS, SERIES 2008
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007