New York, April 05, 2019 -- Moody's Investors Service has affirmed the Aa1/ VMIG 1 letter of credit-backed
rating of the State of California (Issuer) Kindergarten-University
Public Education Facilities Bonds, Series 2005B1 in connection with
the issuance of a substitute letter of credit (LOC) to be provided by
Wells Fargo Bank, N.A. (the Bank).
RATINGS RATIONALE
Upon the effective date of the substitute LOC, currently scheduled
for April 24, 2019, 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
Aa1(cr) and P-1(cr), respectively. Moody's currently
maintains an underlying rating of Aa3 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
• Long-Term: Moody's upgrades the long-term CR
Assessment of the Bank or the underlying rating of the Bonds.
• Short-Term: Not applicable
FACTORS THAT COULD LEAD TO A DOWNGRADE
• Long-Term: Moody's downgrades the long-term
CR Assessment of the Bank or the underlying rating of the Bonds.
• Long-Term: Moody's assessment of the level of default
dependence between the Bank and the Issuer increases.
• Short-Term: Moody's downgrades the short-term
CR Assessment of the Bank.
The LOC is sized for the current principal amount of the Bonds outstanding
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: mandatory tender not less than five (5) days
prior to the expiration or termination of the LOC, unless such expiration
coincides with a conversion or substitution of the LOC, in which
case the mandatory tender for conversion or substitution shall have occurred.
The stated expiration date for the LOC is April 22, 2022.
• Substitution: mandatory tender on the substitution date.
The LOC terminates on the earliest of (i) five (5) days following receipt
by the Bank of notice from the tender agent stating that the LOC has been
substituted and (ii) on the date the LOC is cancelled and returned to
the Bank.
• Interest rate conversion: mandatory tender on each interest
rate conversion date; the LOC terminates on the earliest of:
(i) five (5) days following conversion of all of the Bonds to an interest
rate mode other than the daily or weekly rate, (ii) on the date
the Bank honors a draw on the LOC on or after the conversion date and
(iii) the date the LOC is cancelled and returned to the Bank once conversion
has occurred and the applicable draw has been honored.
• Event of default or event of non-appropriation under the
reimbursement agreement: following an event of default or 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; the LOC terminates
on the fifteenth (15th) day following tender agent's receipt of notice
directing such mandatory tender.
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.
The Bonds will be remarketed in the weekly 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 daily, 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. Please see
the Rating Methodologies page on www.moodys.com for a copy
of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Joann Hempel
VP - Senior Credit Officer
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
Jacek Stolarz
Asst Vice President - Analyst
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
