New York, November 05, 2020 -- Moody's Investors Service has assigned Aa1/VMIG 1 letter of credit-backed
rating to the California (State of), (the Issuer) Variable Rate
General Obligation Bonds, Series 2020A (the Bonds). State
Street Bank and Trust Company (the Bank) will provide a letter of credit
(LOC) to support the Bonds. The Bonds are being issued to fund
projects under the Water Quality, Supply, and Infrastructure
Improvement Act of 2014.
RATINGS RATIONALE
The long-term rating is 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 underlying
rating of the Bonds; (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 State Street Bank and Trust Company are Aa1(cr) and P-1(cr),
respectively. Moody's underlying rating of the Bonds is Aa2.
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 long-term CR Assessment of the Bank.
• Moody's downgrades the short-term CR Assessment of the Bank.
The LOC is sized to cover the principal amount of the Bonds plus 35 days
of interest at 11%, the maximum rate applicable to the Bonds,
calculated based on 365-day year. The LOC provides sufficient
coverage for the Bonds in the daily, weekly remarketed and weekly
alternative trading system (Clarity) interest rate modes only.
The tender agent is instructed to draw on the LOC, on the business
day prior to any interest payment date, redemption date or acceleration
date, in order to receive sufficient funds to make timely payment
of principal and/or interest on the Bonds. In the event that the
Bank fails to honor a draw under the LOC for any payment of principal
and/or interest, the tender agent is instructed to utilize funds
of 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 in order to receive on each purchase date, an amount sufficient
to pay the purchase price to the extent remarketing proceeds are insufficient.
Upon mandatory tender, redemption or acceleration 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
days prior to the stated expiration date of the LOC.
» Substitution of the LOC: mandatory tender on the date of
substitution of the LOC.
» Interest rate mode conversion: mandatory tender on each interest
rate mode conversion date including a change between the weekly remarketed
rate mode and the weekly Clarity rate mode.
» Event of default under the reimbursement agreement: the Bank
may send a notice of event of default under the reimbursement agreement
or a notice of a non-appropriation event directing mandatory tender
of the Bonds. Upon receipt of such notice, the Bonds shall
be purchased no later than the tenth day following the tender agent's
receipt of such notice.
Draws made on the LOC for interest shall be automatically reinstated on
the date of such drawing.
Bondholders may optionally tender Bonds in the weekly Clarity rate mode
on any Rate Effective Date (each Thursday) with either (i) notification
via the Clarity bid process on the Wednesday prior or (ii) notice to the
tender agent and market agent received any day (Thursday through Tuesday)
prior to the Rate Determination Date (each Wednesday). Bondholders
may optionally tender Bonds in the daily rate mode on any business day
with notice by 11:00 a.m., New York, NY
time to the tender agent and remarketing agent. Bondholders may
optionally tender Bonds in the weekly remarketed rate mode on any business
day with seven days prior notice to the tender agent and remarketing agent.
Bondholders tendering Bonds will receive the purchase price equal to the
par amount of the Bonds tendered plus accrued interest to the purchase
date.
The Bonds will initially bear interest in the weekly Clarity rate mode
with scheduled interest paid on the first business day of each month.
The interest rate on the Bonds may be converted, in whole,
to the weekly remarketed, daily, monthly, short-term,
long-term or fixed rate modes. Moody's JDA long-term
and short-term rating applies to the Bonds in the weekly Clarity,
weekly remarketed and daily 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 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.
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
Michael J. Loughlin
Vice President - Senior 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
