$22.2 MILLION OF DEBT AFFECTED. LONG TERM JDA RATING BASED ON LONG TERM RATING OF BANK OF AMERICA, N.A. AS LOC PROVIDER AND THE UNDERLYING RATING ON THE BONDS
Expected Sale Date
NEW YORK, Oct 27, 2010 -- Moody's Investors Service assigns an Aa1/VMIG 1 rating to The Public
Building Authority of Sevier County, Tennessee Local Government Public
Improvement Bonds (Revenue Program V), Series V-D- 1.
The long term rating is 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 Bank of America, N.A. (the Bank) as provider
of the letter of credit; the underlying rating assigned to 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 is based on the
short term rating of the Bank. The Bank is rated Aa3 for its long-term deposits
and Prime-1 for its short-term deposits. Moody's currently maintains an
underlying rating of Aa2 on the Bonds based on the payment under the loan
agreement provided by the City of Sevierville, TN electric system (the City).
Since a loss to investors would occur only if both the Bank providing the letter
of credit and the City default in payment, Moody's has assigned 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 City. Moody's has determined that there is a moderate
level of default dependence between the Bank and the City. As a result, the
joint probability of default for the Bank and the City results in a credit risk
consistent with a JDA rating of Aa1.
Interest Rate Modes
The Bonds are being issued in the weekly rate mode and pay interest on the first
Wednesday of each month. The trust indenture permits conversion of the interest
rate on the Bonds, in whole, to the daily, commercial paper or term rate modes
and the Bonds will be subject to mandatory tender upon conversion (except for
conversion between the daily and weekly modes). The letter of credit
provides sufficient coverage for bonds in the weekly and daily rate
modes. Moody's JDA rating only applies to the Bonds while they bear interest in
the daily and weekly rate modes. While in the daily rate mode interest is
payable on the fifth business day of each month.
Flow of Funds
The trustee is instructed to draw under the letter of credit for principal and
interest in accordance with its terms in order to receive payment of principal
and/or interest on the Bonds on each interest payment date, maturity date,
redemption date or acceleration date of the Bonds. In the event that the Bank
wrongfully fails to honor any draw under the LOC, the trustee is instructed to
utilize funds from the City in order to make such payments to bondholders in a
full and timely manner.
The trustee is also instructed to draw under the letter of credit in
accordance with its terms on each purchase date for an amount sufficient,
along with any remarketing proceeds, to make full payment of purchase price on
all the Bonds tendered. 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 written confirmation from the Bank stating that the letter of
credit has been reinstated for the full amount of the purchase price drawn for
Letter of Credit
The letter of credit is sized to cover the principal of the bonds plus 40 days
of interest at the maximum rate applicable to the Bonds (12%). The letter of
credit will provide coverage for the bonds while they bear interest in the daily
or weekly rate modes.
Draws on the Letter of Credit
Conforming draws under the letter of credit for principal and interest received
by the Bank by 10:00 a.m., Scranton, PA time, on a business day, will be honored
by 10:30 a.m., Scranton, PA time, on the following business day. Conforming
draws for purchase price received by the Bank by 11:00 a.m., Scranton, PA
time, on a business day, will be honored by the Bank by 12:30 p.m., Scranton, PA
time, on the same business day.
Reinstatement of Interest Draws
Draws made under the letter of credit for interest shall be
automatically reinstated on the date the Bank honors such drawing.
Reimbursement Agreement Defaults
The Bank may at any time send a notice of an event of default under
the reimbursement agreement directing an acceleration of the bonds. The LOC
shall terminate on the 30th day following the trustee's receipt of such notice.
The Bonds will be subject to immediate acceleration and interest shall cease to
accrue on the date of declaration of acceleration.
Expiration/Termination of the Letter of Credit
The letter of credit will terminate upon the earliest to occur of: (i) the
stated expiration date, October 28, 2013; (ii) two business days following the
conversion of the bonds to a rate mode other than the weekly or the daily rate
mode; (iii) on the date on which the bank honors the final draw; (iv) the 30th
day following receipt by the trustee of a notice of an event of default under
the reimbursement agreement; or (v) the date on which the letter of credit is
surrendered by the trustee for cancellation.
The Bonds will be subject to mandatory tender on the effective date of any
substitute 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
existing letter of credit will not be surrendered to the Bank for cancellation
until such tender draw has been honored.
The bonds are subject to optional tender in the daily mode on any business day
upon bondholders notice by 10:30 a.m., New York time and during the weekly rate
mode on any business day with seven days notice to the tender agent.
The bonds are subject to mandatory tender on; (i) each interest rate conversion
date (except for conversion between the daily and weekly rate modes); (ii) the
effective date of any substitution of the letter of credit; and (iii) the
interest payment date prior to the expiration date of the letter of credit.
What Could Change the Rating-Up
Long-Term: the long-term rating on the Bonds could be upgraded if the long-term
deposit rating of the Bank or the long-term rating of the City were upgraded, or
if there was a decrease in the level of default dependence between the letter of
credit bank and the City.
What Could Change the Rating-Down
Long-Term: the long-term rating on the Bonds could be downgraded if the
long-term deposit rating of the Bank or the long-term rating of the City was
downgraded, or if there was an increase in the level of default dependence
between the letter of credit bank and the City.
Short-Term: the short-term rating on the Bonds could be lowered if the
short-term deposit rating of the Bank were downgraded.
Trustee: Regions Bank
Underwriter & Remarketing Agent: Morgan Keegan
The principal methodologies used in rating this issue were Moody's Rating
Methodology for Letter of Credit published in August 2005 and Applying Global
Joint Default Analysis to Letter of Credit Transactions in the U. S. Public
Sector published in September 2010. Other methodologies and factors that may
have been considered in the process of rating this issue can also be found on
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 assigning 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.
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 ASSIGNS Aa1/ VMIG 1 LETTER OF CREDIT BACKED RATING TO THE PUBLIC BUILDING AUTHORITY OF SEVIER COUNTY, TN LOCAL GOVT PUBLIC IMPROVEMENT BONDS (REVENUE PROGRAM V) SERIES V-D-1
Moody's Investors Service
250 Greenwich Street
New York, NY 10007