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Rating Update:

MOODY'S DOWNGRADES TO A1/SG FROM Aa3/SG THE LETTER OF CREDIT BACKED RATING OF PENNSYLVANIA HIGHER EDUCATIONAL FACILITIES AUTHORITY INDUSTRIAL REVENUE BONDS (DREXEL UNIVERSITY, PA), SERIES 2003-B

25 Apr 2011

$19.26 MILLION OF DEBT AFFECTED

Pennsylvania Higher Educational Facs. Auth.
Fully Supported
PA

Opinion

NEW YORK, Apr 25, 2011 -- Moody's Investors Service has downgraded the letter of credit-backed rating to A1/SG from Aa3/SG for the Pennsylvania Higher Educational Facilities Authority Industrial Revenue Bonds, Series 2003-B (Drexel University, PA) based on the downgrade of Drexel University's underlying rating to A3 from A2. This rating action also concludes Moody's review of this transaction for possible downgrade, commenced in December of 2010, due to the potential for preference risk in Allied Irish Banks plc letter of credit transactions.

SUMMARY RATING RATIONALE

The rating action is based on: (1) the downgrade of Drexel University's underlying rating to A3 from A2 (see Moody's rating update report titled, Moody's Downgrades Drexel University's (Pa) Revenue Bonds To A3 From A2 And Assigns A3 Rating To Series 2011A Revenue Bonds; Outlook Is Stable, published on April 21, 2011); and (2) the conclusion of Moody's assessment of preference risk in transactions rated based on a joint default analysis (JDA) supported by Allied Irish Banks plc (AIB) letters of credit (LOCs), specifically, the risk that payments made to bondholders by AIB under the LOCs could be subject to recovery as preferential payments in any resolution of AIB's obligations. Based on a review of relevant provisions of Irish law, Moody's has concluded that the risk that a principal or interest payment made under an AIB letter of credit would be recovered as a preferential payment is de minimus.

DETAILED CREDIT DISCUSSION

The long term rating is based on joint default analysis and reflects Moody's approach to rating jointly supported transactions. The JDA rating is based upon the Ba3 long-term rating of AIB as provider of the letter of credit; the A3 rating on Drexel University's long-term debt; 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 on the bonds is based on the NP short term senior unsecured rating of the Bank. Moody's corporate short-term rating of NP corresponds to a municipal short-term rating of SG.

Since a loss to investors would occur only if AIB and Drexel University 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 AIB and Drexel University. Moody's has determined that there is a low level of default dependence between AIB and Drexel University. The low default dependence, and ratings of AIB and Drexel University result in a JDA rating of A1.

WHAT COULD MAKE THE RATING GO UP

Long-term: The long-term rating on the bond could be raised if the long term senior unsecured rating on AIB were upgraded. The long-term rating could also be raised if the long-term rating of the underlying bonds were upgraded.

Short-term: The short-term rating on the bonds could be raised if the short-term senior unsecured rating on AIB were upgraded.

WHAT COULD MAKE THE RATING GO DOWN

Long-term: The long-term rating on the bonds could be lowered if the long term senior unsecured rating on AIB was downgraded. The long-term rating could also be downgraded if the

long-term rating of the underlying bonds were downgraded or if the default dependence between AIB and Drexel University were to increase.

Short-term: Not applicable.

PRINCIPAL METHODOLOGIES USED

The principal methodologies used in rating this issue were Moody's Methodology for Rating U.S. Public Finance Transactions Based on the Credit Substitution Approach published in August 2009 and Applying Global Joint Default Analysis to Letter of Credit Backed Transactions in the U.S. Public Finance Sector published on October 2010.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating actions and the rating history.

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.

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

Robert Azrin
Analyst
Public Finance Group
Moody's Investors Service

Thomas Jacobs
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 DOWNGRADES TO A1/SG FROM Aa3/SG THE LETTER OF CREDIT BACKED RATING OF PENNSYLVANIA HIGHER EDUCATIONAL FACILITIES AUTHORITY INDUSTRIAL REVENUE BONDS (DREXEL UNIVERSITY, PA), SERIES 2003-B
No Related Data.
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