New York, November 02, 2020 -- Moody's Investors Service hereby affirms the P-1 rating of City of Houston, Texas, General Obligation Commercial Paper Notes, Series H-2 (the Notes). The affirmation is in conjunction with the substitution of the current letter of credit with a Standby Bond Purchase Agreement (SBPA) provided by TD Bank, N.A. (the Bank) scheduled to become effective November 9, 2020.
RATINGS RATIONALE
The P-1 rating is based upon (i) Moody's short-term Counterparty Risk (CR) Assessment of the Bank which is currently P-1(cr); and (ii) the likelihood of termination of the liquidity facility without payment of the Notes. Events, which would cause the liquidity facility to terminate without payment of the Notes, are directly related to the credit quality of the City. Accordingly, the likelihood of any such event is reflected in the Aa3 General Obligation long-term rating currently assigned to the City.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING
- Not applicable.
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING
- Moody's downgrades the short-term CR Assessment of the Bank, or a multi-notch downgrade of the General Obligation long-term rating of the City.
LEGAL SECURITY
The Bank may automatically terminate or suspend payment under the liquidity facility upon any of the following events:
- principal and/or interest on the reimbursement owed to the Bank following payment of the Notes (Advance) or any parity general obligation debt of the City is not paid when due;
- certain bankruptcy and insolvency events of the City;
- a final, non-appealable judgment for the payment of more than $25 million is entered against the City and such judgment remains unsatisfied for a period of 90 days;
- the State of Texas or any other Governmental Authority having jurisdiction over the City imposes a debt moratorium, debt restructuring or comparable restriction on repayment when due and payable of the principal of or interest on the City's General Obligation Debt;
- the authority of the City under the Ordinance is limited as a result of federal, state, or municipal legislative or administration action or a final non-appealable judgment by any court having jurisdiction over the City so as to prevent the City from exercising its power to levy taxes sufficient in amount to pay the principal of and interest on any Advance or any Note when due; or as a result of any judgment or other decree by any court having jurisdiction over the City, the City is unable set tax rates or collect revenues in a timely manner sufficient in amount to pay the principal of and interest on any Advance or any Note when due;
- the general obligation pledge of the City or any provision of the Liquidity Agreement, the Bank Note, any Note, the Issuing and Paying Agency Agreement, the Act or the Ordinance in its entirety, which relates to either (i) the payment of principal and/or interest on the Notes or (ii) the payment of principal and/or interest on the Bank Notes, ceases to be valid and binding upon the City or such provisions are repudiated by the City;
- each rating agency then rating the Notes: (a) has assigned a long-term rating on any General Obligation Debt of the City below investment grade or (b) suspends or withdraws the rating on the Notes or any General Obligation Debt of the City for credit related reasons; or
The Issuing and Paying Agent (the IPA) will issue commercial paper Notes upon receipt of issuance instructions from either the City or the commercial paper dealer on behalf of the City.
The maturity date of the Notes (i) may not be longer than 270 days and (ii) shall occur no later than the third business day preceding the expiration date of the liquidity facility. No notes may be issued if such issuance would cause the aggregate principal and interest amount of Notes outstanding to exceed the amount provided for under the liquidity facility. The IPA shall stop issuing Notes following its receipt of a no-issuance notice from the Bank.
Funds provided by the City and proceeds from the issuance of roll-over Notes will be used to pay the principal and interest on the Notes due at maturity. To the extent such funds and proceeds are insufficient, the IPA will draw on the liquidity facility in order to pay principal and interest. The liquidity facility is sized to cover the maximum principal amount of Notes, $100 million, plus 270 days of interest at the maximum rate of 10% (365 basis).
The liquidity facility may be substituted with prior written notice from Moody's stating that the rating on the Notes will not be reduced or withdrawn as a result of such substitution.
PROFILE
The City of Houston is the largest city in the state and fourth largest city, by population, in the US. Located in Harris County (Aaa stable), the city is home to an estimated 2.3 million people. Its main economic drivers include energy and resources, manufacturing and logistics and healthcare and life sciences.
METHODOLOGY
The principal methodology used in this rating was Variable Rate Instruments Supported by Conditional Liquidity Facilities published in March 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1057134. 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.
The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
This rating is 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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.
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Adebola Kushimo
Lead Analyst
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