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Rating Update:

MOODY'S ASSIGNS P-1 CONFIRMING LETTER OF CREDIT BACKED RATING TO ARKANSAS DEVELOPMENT FINANCE AUTHORITY VARIABLE RATE DEMAND INDUSTRIAL DEVELOPMENT REVENUE BONDS, SERIES 1995 (PACO STEEL & ENGINEERING CORP. PROJECT)

13 Dec 2010

$5,630,000 OF DEBT AFFECTED. CONFIRMING LETTER OF CREDIT PROVIDED BY WELLS FARGO BANK, N.A.

Paco Steel and Engineering Corporation
Fully Supported
AR

Opinion

NEW YORK, Dec 13, 2010 -- Moody's Investors Service has assigned a P-1 rating to the Arkansas Development Finance Authority Variable Rate Demand Industrial Development Revenue Bonds, Series 1995 (Paco Steel & Engineering Corp. Project) (the Bonds) in conjunction with the issuance of a confirming letter of credit (CLOC) to be provided by Wells Fargo Bank, N.A. (Wells Fargo). The CLOC is being issued as a confirmation to a letter of credit (LOC) to be provided by Wilshire State Bank (Wilshire). The effective date of the confirming letter of credit is December 8, 2010. Moody's has reinstated the P-1 rating in connection with the issuance of the CLOC as the P-1 rating had been withdrawn following the expiration of the previous letter of credit provided by J.P. Morgan Chase Bank, National Association.

RATINGS RATIONALE

The rating reflects the credit quality of Wells Fargo as provider of the CLOC;; and the structure and legal protections of the transaction, which ensures timely payment of debt service and purchase price payments to bondholders. The rating on the Bonds is based on the structure and legal protections of the transaction and the short-term rating of Wells Fargo.

Moody's currently rates Wells Fargo Aa2 for long-term other senior obligations (OSO) and P-1 for short-term OSO. Wilshire is not rated by Moody's.

Interest Payment Date

The Bonds will bear interest at a weekly rate and pay interest on the first business day of each month. The Bonds may be converted, in whole, to bear interest at a fixed rate. The Bonds are subject to mandatory tender upon conversion to a fixed rate mode. Moody's rating applies to the Bonds in the weekly rate mode only.

Additional Bonds

The trust indenture does not permit the issuance of additional Bonds.

Flow of Funds

The trustee is instructed to draw under the LOC for principal or interest prior to 11:30 a.m., New York time, on the business day immediately preceding the payment date. The trustee is also instructed to draw under the LOC by 12:00 p.m., New York time, on the business day immediately preceding the purchase date for full purchase price due on the Bonds.

In the event that Wilshire fails to timely honor a conforming draw made on the LOC or if the LOC is repudiated, the trustee shall, on the business day prior to the due date or purchase date, draw for the full amount available under the CLOC by 4:00 p.m., New York time to pay the principal and interest or purchase price due on the Bonds. The trustee shall pay Bondholders principal, accrued interest, or purchase price due on such payment date or purchase date, and shall affect a mandatory tender of all of the Bonds within ten (10) days of drawing on the CLOC.

The Fronting and Confirming Letters Of Credit

The LOC and CLOC are each sized for full principal plus 44 days of interest at the maximum rate applicable to the Bonds (12%). The LOC and CLOC each provide sufficient coverage for the Bonds while they bear interest in the weekly rate mode.

The LOC and CLOC shall each be governed by and construed in accordance with the Uniform Customs and Practice for Documentary Credits (2007 Revision), International Chamber of Commerce Publication No. 600.

Draws On the Fronting and Confirming Letters Of Credit

Conforming draws for principal, interest or purchase price presented to Wilshire by 8:30 a.m., Los Angeles time, on a business day, will be honored by 11:30 a.m., Los Angeles time, on the same business day.

Conforming draws for principal, interest or purchase price presented to Wells Fargo under the CLOC made at or before 1:00 p.m., San Francisco time, on a business day, will be honored by 10:00 a.m., San Francisco time, on the next business day.

Reinstatement of Interest Draws

Draws made under the LOC for interest shall be reinstated automatically on the eleventh (11th) calendar day following the honoring of a draw by Wilshire unless notice is received by the trustee by the tenth (10th) day following the honoring of a draw that an event of default under the reimbursement agreement has occurred and as a result, the LOC will not be reinstated and the trustee is instructed to accelerate the Bonds. Upon receipt of such notice, the trustee shall declare the principal and interest accrued on the Bonds to be due and payable immediately. The trustee shall draw on the LOC and interest will cease to accrue on the date of declaration of acceleration.

Draws made under the CLOC shall not be reinstated. The trustee is instructed to draw for the full amount available under the CLOC if it is required to draw under the CLOC.

Reimbursement Agreement Defaults

Wilshire may, at its option, send written notice to the trustee stating that an event of default under the reimbursement agreement has occurred, and directing the trustee to accelerate or cause a mandatory tender of the Bonds. Upon receipt of notice that an event of default under the reimbursement agreement has occurred with direction to accelerate, the trustee shall declare the Bonds to be immediately due and payable and draw on the LOC. Interest will cease to accrue upon such declaration. Upon receipt of notice that an event of default under the reimbursement agreement has occurred with direction to cause a mandatory tender, the trustee shall cause the Bonds to be purchased within fifteen (15) days of receipt of such notice. The LOC terminates upon the earlier to occur of (a) fifteen (15) days following the trustee's receipt of notice that an event of default under the reimbursement agreement has occurred with direction to accelerate the Bonds and (b) the date an acceleration drawing is honored.

Events of Default Related to Payment under the Trust Indenture

Pursuant to the trust indenture nonpayment of principal, interest and/or purchase price on any Bonds when due could result in an acceleration of the Bonds.

Expiration /Termination of the Letters Of Credit

The LOC will terminate upon the earliest of: (a) December 1, 2011, (b) the earlier of (i) the date which is fifteen (15) days following conversion of all of the Bonds to bear interest in a fixed rate mode and (ii) the date on which Wilshire honors a draw under the LOC in connection with such conversion, (c) the date which is fifteen (15) days following Wilshire's receipt of notice from the trustee that (i) no Bonds remain outstanding, (ii) all required drawings have been honored, or (iii) a substitute letter of credit has been issued, (d) the date an acceleration drawing is honored, and (e) the date which is fifteen (15) days following receipt by the trustee of notice from Wilshire that an event of default under the reimbursement agreement has occurred with direction to accelerate the Bonds.

The CLOC expires on December 15, 2011.

Substitution

The Bonds will be subject to mandatory tender on the second business day preceding the effective date of a substitute letter of credit or confirming letter of credit unless the trustee has received notice from Moody's that the substitution will not by itself result in a reduction, withdrawal or suspension of the rating on the Bonds.

Optional Tenders

Bondholders may optionally tender their Bonds during the weekly rate mode on any business day with seven days prior notice to the trustee.

Mandatory Tenders

The Bonds are subject to mandatory purchase upon each of the following: (a) the second business day preceding the effective date of a substitute letter of credit, unless the trustee has received notice from Moody's that the substitution will not by itself result in a reduction, withdrawal or suspension of the rating on the Bonds. (b) the second business day preceding the expiration or termination of the LOC or CLOC, (c) the date the Bonds are converted to bear interest at a fixed rate mode, (d) a business day selected by the trustee which is not more than fifteen (15) days following the trustee's receipt of notice from the Bank stating that an event of default under the reimbursement agreement has occurred with direction to cause a mandatory purchase of the Bonds, and (e) a business day selected by the trustee which is not more than ten (10) days after the date the trustee draws on the CLOC because of its failure to receive payment from a drawing under the LOC.

Mandatory Redemptions

The Bonds are subject to mandatory redemption upon each of the following: (a) receipt by the company of notice of the issuance of a private letter ruling or a technical advice memorandum by the Internal Revenue Service in a proceeding in connection with which the company has had the opportunity to participate, and (b) receipt by the company of notice of a final determination of taxability.

What Could Change the Rating - Up

Not applicable.

What Could Change the Rating - Down

The rating on the bonds could be lowered if the short-term other senior obligation rating on Wells Fargo was downgraded

Key Contacts

Underwriter and Remarketing Agent: Bank of New York Mellon Capital Markets, LLC.

Trustee: Bank of New York Mellon Trust Company, N. A.

The principal methodology used in this rating was 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 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.

Analysts

Coby Kutcher
Analyst
Public Finance Group
Moody's Investors Service

Michael J. Loughlin
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 ASSIGNS P-1 CONFIRMING LETTER OF CREDIT BACKED RATING TO ARKANSAS DEVELOPMENT FINANCE AUTHORITY VARIABLE RATE DEMAND INDUSTRIAL DEVELOPMENT REVENUE BONDS, SERIES 1995 (PACO STEEL & ENGINEERING CORP. PROJECT)
No Related Data.
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