New York, November 12, 2021 -- Moody's Investors Service (Moody's) has affirmed the Aa1/VMIG 1 letter
of credit-backed rating of the State of California (the Issuer)
Kindergarten-University Public Education Facilities Bonds,
Series 2005B5 in connection with the issuance of a substitute letter of
credit (LOC) to be provided by U.S. Bank, National
Association (the Bank).
RATINGS RATIONALE
Upon the effective date of the substitute LOC, currently scheduled
for November 18, 2021, the long-term rating will continue
to be based on a joint default analysis (JDA) which reflects Moody's approach
to rating jointly supported transactions. JDA incorporates:
(i) the long-term Counterparty Risk (CR) Assessment of the Bank,
as provider of the LOC, and the rating of the Issuer; (ii)
the probability of default in payment by the Bank and the Issuer;
and (iii) the structure and legal protections of the transaction,
which provide for timely debt service payments. Moody's current
long-term and short-term CR Assessments of the Bank are
Aa3(cr) and P-1(cr), respectively. Moody's currently
maintains an underlying rating of Aa2 on the Bonds.
Moody's has determined that the joint probability of default between the
Bank and the Issuer is low which results in credit risk consistent with
a JDA rating of Aa1 for the Bonds. Moody's assessment of the likelihood
of timely payment of purchase price is reflected in the short-term
rating of the Bonds, which is based on the short-term CR
Assessment of the Bank.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
• Moody's upgrades the underlying rating of the Bonds or the long-term
CR Assessment of the Bank.
• Upgrade of the short-term rating is not applicable.
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
• Moody's downgrades the underlying rating of the Bonds or the long-term
CR Assessment of the Bank.
• Moody's determines that the default dependence between the Issuer
and the Bank has increased.
• Moody's downgrades the short-term CR Assessment of the Bank.
The LOC is sized for the outstanding principal amount of the Bonds plus
35 days of interest at 11%, the maximum rate applicable to
the Bonds, and provides sufficient coverage while the Bonds are
in the daily or weekly rate modes.
The tender agent is instructed to draw on the LOC, in accordance
with its terms, in order to receive sufficient funds to make timely
payment of principal and interest to bondholders. In the event
that the Bank fails to honor any valid draw on the LOC for any payment
of principal and/or interest, the tender agent is instructed to
use funds deposited by the Issuer to make such payments to bondholders
in a full and timely manner.
The tender agent is also instructed to draw on the LOC, in accordance
with its terms, on each purchase date in order to receive sufficient
funds from the Bank to pay the purchase price due on the Bonds to the
extent remarketing proceeds are insufficient. Bonds which are purchased
by the Bank due to a failed remarketing will be delivered to the Bank
but will not be remarketed to a new holder until the tender agent has
received confirmation from the Bank stating that the LOC has been reinstated
in the amount of the purchase price drawn for such Bonds.
Upon mandatory tender or redemption the Bonds are subject to payment funded
with a draw on the LOC. Prior to the termination or expiration
of the LOC the Bonds are subject to mandatory tender as follows:
» Expiration of the LOC: mandatory tender not less than five
(5) days prior to the expiration or termination of the LOC; the LOC's
stated expiration date is November 18, 2024.
» Substitution of the LOC: mandatory tender on the LOC substitution
date;
» Interest rate mode conversion: mandatory tender upon each
conversion of the interest rate mode;
» Event of default or event of non-appropriation under the
reimbursement agreement: following an event of default or an event
of non-appropriation under the reimbursement agreement the Bank
may deliver a written notice to the tender agent directing a mandatory
tender, which will occur not more than ten (10) days after receipt
by the tender agent of such notice from the Bank.
Conforming draws for principal and/or interest received by the Bank at
or prior to 4:00 p.m., on a business day,
will be honored by the Bank at or by 11:00 a.m.,
on the next business day. Conforming draws for purchase price received
by the Bank at or prior to 12:15 p.m., on a
business day, will be honored at or by 2:45 p.m.,
on the same business day. (All times referred herein are New York
time). Draws made under the LOC for interest shall be automatically
reinstated by the Bank.
Bondholders may optionally tender Bonds while in the daily rate mode on
any business day by providing notice by 11:00 a.m.
to the tender agent and remarketing agent. Bondholders may optionally
tender Bonds in the weekly mode on any business day with seven (7) days
prior notice to the tender agent and the remarketing agent. Bondholders
tendering the Bonds will receive purchase price equal to the par amount
of the Bonds tendered plus accrued interest to the tender date.
Upon substitution of the LOC, the Bonds will be remarketed in the
daily rate mode with interest payable on the first business day of each
month. The interest rate on the Bonds may be converted, in
whole, to the weekly, term, flexible or auction rate
mode. Moody's JDA and short-term ratings apply to Bonds
in the daily and weekly rate modes only.
The principal methodology used in these ratings was Rating Transactions
Based on the Credit Substitution Approach: Letter of Credit-backed,
Insured and Guaranteed Debts published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1068154.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions in the disclosure form. Moody's Rating Symbols and
Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain 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
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jacek Stolarz
Asst Vice President - Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Joann Hempel
VP - Senior Credit Officer
Public Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
