$50 MILLION OF DEBT AFFECTED. RATING BASED ON JOINT SUPPORT FROM JPMORGAN CHASE BANK, N.A. AS LETTER OF CREDIT PROVIDER AND AARP
NEW YORK, Sep 15, 2011 -- Moody's Investors Service has confirmed the Aa1 long-term letter of credit
backed rating of the AARP Taxable Variable Rate Demand Notes, Series 2001 (the
"Notes") and affirmed the VMIG 1 short-term rating in conjunction with the
substitution of the current letter of credit securing the Notes provided by Bank
of America, N.A. with a letter of credit to be provided for the Notes by
JPMorgan Chase Bank, N.A. (the "Bank").
SUMMARY RATINGS 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 rating is
based upon the long-term rating of the Bank as provider of the letter of credit
supporting the Notes, the underlying rating assigned to the Notes, and the
structure and legal protections of the transaction which ensure timely debt
service payments to investors. The timely payment of purchase price is reflected
in the short-term rating of the Notes. The short term rating is based on the
short term rating of the Bank. JPMorgan Chase Bank, N.A.'s long-term other
senior obligations ("OSO") are currently rated Aa1. Moody's currently rates the
Bank's short-term OSO Prime-1. Moody's currently maintains an underlying
rating of Aa3 on the Notes.
Since non-payment on the Bonds would occur only if both the Bank providing the
letter of credit and AARP 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 support provider and the issuer. Moody's has determined that there
is a low level of default dependence between the Bank and AARP. As a result, the
joint probability of default for the Bank and AARP results in a credit risk
consistent with a JDA rating of Aa1.
DETAILED CREDIT DISCUSSION
Interest Rate Modes And Payment
The Notes bear interest in the weekly rate mode and interest will continue to be
paid on the first business day of each month. The bond indenture does not
provide for conversion of the Notes to any other rate modes. Accordingly,
Moody's JDA and short-term ratings only apply to Notes bearing interest in the
weekly rate mode.
The issuance of additional Notes is not permitted under the bond indenture.
Flow Of Funds
The trustee is instructed to draw under the letter of credit in accordance with
its terms to receive sufficient funds to pay principal and interest by 1:45 p.m.
on the payment date. In the event the Bank fails to honor a conforming draw
under the letter of credit for principal of or interest on the Notes, AARP is
required to pay, or cause to be paid, the principal and accrued interest
thereon of every Note. The trustee is also instructed to draw under the letter
of credit in accordance with its terms to receive in immediately available funds
by 1:45 p.m. on each purchase date the purchase price to the extent remarketing
proceeds are insufficient. Notes 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 the amount drawn for the purchase of such Notes. (All times
refer to Eastern Standard Time).
Letter Of Credit
The letter of credit is sized for full principal plus thirty-five days of
interest at the maximum rate applicable to the Notes (12%) and provides
sufficient coverage for payment of principal, interest and purchase price on the
notes. The letter of credit provided by the Bank is to be governed by and
construed in accordance with the International Standby Practices 1998,
International Chamber of Commerce Publication No. 590 (ISP98).
Draws On The Letter Of Credit
Conforming draws for principal or interest received by the Bank at or before
3:00 p.m. on a business day will be honored by 12:30 p.m. on the next business
day. Conforming draws for purchase price received by the Bank at or before
9:30 a.m. on a business day will be honored by 12:30 p.m. on the same business
day. (All times refer to Central Standard Time).
Reinstatement Of Interest Draws
Draws made under the letter of credit for interest shall be
reinstated automatically upon payment of the Bank of each such draw.
Reimbursement Agreement Defaults
In the event of a default under the reimbursement agreement, the Bank may, at
its option, deliver written notice to the trustee stating that such event of
default under the reimbursement agreement has occurred and direct the trustee to
either accelerate or cause a mandatory redemption of the Notes. If the Bank
directs to the trustee to accelerate the Notes, the trustee shall declare all
Bonds then outstanding to be due and payable immediately, and upon such
declaration, all principal and interest accrued thereon shall become and be
immediately due and payable. The trustee shall immediately draw on the letter of
credit, and interest shall cease to accrue upon such declaration. If the Bank
directs the trustee to cause a mandatory redemption, the trustee shall do so on
the earliest date for which notice of mandatory redemption can be given upon
receipt of the Bank's notice of an event of default under the reimbursement
agreement. Such notice shall be sent to each holder at least 30 but not more
than 60 days prior to each redemption. Upon request by the Bank, the
trustee shall draw on the letter of credit to purchase the Notes in lieu of
redemption or acceleration on the date of said redemption or acceleration. The
letter of credit terminates on the fourteenth calendar day following the
trustee's receipt of notice from the Bank specifying the occurrence of an event
of default under the reimbursement agreement directing the trustee to accelerate
Expiration/Termination Of The Letter Of Credit
The letter of credit will terminate at the close of business upon the earliest
to occur of: (i) September 15, 2016, the stated expiration date of the letter of
credit; (ii) the date which is fifteen days following the Bank's receipt of
notice from the trustee stating that (a) no Notes remain outstanding, (b) all
required drawings have been made and honored under the letter of credit, or (c)
a substitute letter of credit has been issued to replace the existing letter of
credit; (iii) the date on which an acceleration drawing is honored by the Bank,
or (iv) the date which is fourteen days following the trustee's receipt of
notice from the Bank specifying the occurrence of an event of default under the
reimbursement agreement directing the trustee to accelerate the Notes.
Substitution of the letter of credit is permitted under the bond indenture. The
Notes will be subject to mandatory tender on the effective date of any such
substitution. The trustee is instructed to draw under the existing letter of
credit, rather than the substitute letter of credit, on the substitution date.
The trustee is required to wait until all draws required to be made under the
existing letter of credit have been honored before surrendering the existing
letter of credit to the Bank.
Bondholders may, at their option, tender their Notes on any business day upon
the delivery of written notice delivered by 11:00 a.m. at least 7 calendar days
or 5 business days (whichever is earlier), but not more than 30 calendar days,
prior to such tender date. (All times refer to Eastern Standard Time).
The Notes are subject to mandatory tender on the following dates: (i) on the
effective date of a substitute letter of credit; and, (ii) on any interest
payment date selected by AARP in a notice to the trustee delivered at least
thirty days prior to such date (provided that if such day is not a business day,
then on the next succeeding business day).
The Notes are subject to mandatory redemption on the following dates: (i) the
earliest date for which notice can be given upon receipt by the trustee of
notice from the Bank specifying the occurrence of an event of default under the
reimbursement agreement directing the trustee to cause a mandatory redemption of
the Notes (provided that each notice shall be sent at least thirty days but not
more than sixty days prior to each redemption); and, (ii) the interest payment
date which next precedes by at least fourteen days the stated expiration or
termination date of the letter of credit.
WHAT COULD CHANGE THE RATING-UP
Long-Term: The long-term rating on the Notes could be raised if the Bank's
long-term OSO rating is upgraded or the underlying rating on the Notes is
Short-Term: Not Applicable.
WHAT COULD CHANGE THE RATING-DOWN
Long-Term: The long-term rating on the Notes could be lowered if the Bank's
long-term OSO rating or the underlying rating on the Notes is downgraded or if
the default dependence increases.
Short-Term: The short-term rating on the Notes could be lowered if the Bank's
short-term OSO rating isdowngraded.
Trustee: U.S. Bank National Association
Remarketing Agent: J.P. Morgan Securities, LLC
The last rating action on the Notes took place on June 3, 2011 when the
long-term rating was placed on review for downgrade.
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. Please see the Credit Policy page on
www.moodys.com for a copy of these methodologies.
For ratings issued on a program, series or category/class of debt, this
announcement provides relevant regulatory disclosures in relation to each rating
of a subsequently issued bond or note of the same series or category/class of
debt or pursuant to a program for which the ratings are derived exclusively from
existing ratings in accordance with Moody's rating practices. For ratings issued
on a support provider, this announcement provides relevant regulatory
disclosures in relation to the rating action on the support provider and in
relation to each particular rating action for securities that derive their
credit ratings from the support provider's credit rating. For provisional
ratings, this announcement provides relevant regulatory disclosures in
relation to the provisional rating assigned, and in relation to a
definitive rating that may be assigned subsequent to the final issuance of the
debt, in each case where the transaction structure and terms have not
changed prior to the assignment of the definitive rating in a manner that
would have affected the rating. For further information please see the ratings
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Information sources used to prepare the rating are the following: parties
involved in the ratings, and public information.
Moody's considers the quality of information available on the rated entity,
obligation or credit satisfactory for the purposes of issuing a rating.
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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 CONFIRMS THE Aa1 LONG-TERM LETTER OF CREDIT BACKED RATING OF THE AARP TAXABLE VARIABLE RATE DEMAND NOTES, SERIES 2001; AFFIRMS THE SHORT-TERM VMIG 1 RATING
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