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29 Jun 2018
New York, June 29, 2018 -- Moody's Investors Service (Moody's) has assigned a P-1 short-term enhanced rating to the Louisville and Jefferson County Metropolitan Sewer District, KY's Sewer and Drainage Systems Subordinated Program Notes, Commercial Paper Sub-Series 2018A-1 & 2018A-2 (collectively, the Notes).
The Sub-Series 2018A-1 Notes and Sub-Series 2018A-2 Notes benefit from liquidity support in the form of Revolving Credit Agreements (RCA) provided by Bank of America, N.A. (Bank of America) and JPMorgan Chase Bank, N.A. (JPMorgan and, together with Bank of America, the Banks), respectively. The RCAs are currently scheduled to be effective July 10, 2018.
Upon delivery of the RCAs the short-term rating on each Sub-Series of Notes will be derived from (i) the credit quality of the Bank as provider of the RCA and (ii) the likelihood of termination of the RCA without payment of the principal due on the Notes at maturity. Events which would cause such termination are directly related to the credit quality of the Louisville and Jefferson County Metropolitan Sewer District (the District) and the subordinate pledge of sewer system revenues of the District. The District's pledge of sewer system revenues to pay debt service on the Notes is subordinate to its revenue pledge for its Aa3-rated senior lien long term debt. The District currently has no long-term subordinate debt outstanding other than a Kentucky Infrastructure Authority State Revolving Fund loan. If the District were to issue subordinate debt, it would most likely be rated one notch lower than the senior lien debt. Though the subordinate lien provides lower quality security than the senior lien, Moody's believes it is currently sufficient to support the assignment of the P-1 rating to the current sale. If Moody's were to downgrade the rating on the District's outstanding Aa3-rated senior lien revenue bonds, we would reevaluate the rating on the Notes. The current short-term counterparty risk assessment of each Bank is P-1 (cr).
FACTORS THAT COULD LEAD TO AN UPGRADE
-Short-Term: Not applicable
FACTORS THAT COULD LEAD TO A DOWNGRADE
-Short-term: Downgrade of the short-term CR Assessment of the Bank or downgrade of the long-term rating of the District's senior lien revenue bonds.
Each Bank may automatically terminate or suspend its payments under the RCA if: (1) the District fails to pay any scheduled principal and/or interest on a reimbursement obligation to the Bank; (2) the District fails to pay any scheduled principal and/or interest on debt of the District which is on parity; (3) a final, nonappealable judgment or order in an aggregate amount of more than $15 million issued or filed against the District remains unsatisfied and unstayed for a period of 60 days; (4) the District becomes bankrupt or otherwise insolvent; (5) any provision of the RCA relating to the District's ability to make payments of principal and interest on the Notes or reimbursement obligations under the RCA, or the lien on or pledge of revenues securing the Notes or reimbursement obligations under the RCA, ceases to be valid and binding on the District or such provision is declared null and void as a result of action by a court or governmental authority with jurisdiction over the District; (6) the District seeks to establish the invalidity or unenforceability with respect to provisions in the RCA relating to payment of principal and or interest on the Notes or repudiates, denies, or challenges its obligations under the RCA or the documents related to the Notes relating to the payment of the principal of or interest on, or the security for, the Notes; (7) the District, or any governmental authority with jurisdiction over the District, imposes a debt moratorium, debt restructuring or comparable restriction on the repayment when due and payable of its debts with respect to the Notes, a reimbursement obligation to the Bank, debt of the District secured by a lien on pledged revenues that is senior to or on parity with the Notes, or all debt of the District; (8) the long-term rating assigned to parity debt is reduced below investment grade by each rating agency; or (9) dissolution or termination of the existence of the District.
The Issuing and Paying Agent (IPA), U.S. Bank National Association, will issue Notes of any sub-series and deposit proceeds thereof on receipt of issuance instructions from the District, its agent, or a dealer. The amount of Notes issued for each sub-series may not exceed the amount provided for under the applicable RCA.
The Notes shall be issued on an interest-bearing basis. Additionally, each Note issued shall mature no later than: (a) 270 days from the date of issuance; or (b) the business day prior to the expiration date of the applicable RCA. The IPA is instructed to stop issuing Notes following its receipt of a no-issuance notice from each Bank if an event of default under the applicable RCA shall have occurred. When a no-issuance notice is sent, the applicable RCA will terminate upon payment at maturity of the principal amount of all outstanding Notes.
Each RCA is sized at $250 million, the maximum face amount of each series of Notes. The IPA cannot issue Notes exceeding the amount covered by each RCA.
Draws made on each RCA received by the Banks by 11:30 a.m. (Eastern Time) will be honored by 2:00 p.m. (Eastern Time) on the same business day. The IPA, on behalf of the District, will draw on the applicable RCA in order to pay principal and interest on maturing Notes to the extent roll-over proceeds or funds of the District are insufficient. The commitment will be reinstated upon repayment by the District of the amount drawn.
Substitution of each RCA is permitted if all Notes of such series outstanding prior to the substitution have matured.
Each RCA will terminate on the earliest to occur of: (a) July 1, 2021; (b) the date the RCA commitment is reduced to zero or automatically terminated; and (c) the substitution date of the RCA.
The principal methodology used in these ratings was Variable Rate Instruments Supported by Conditional Liquidity Facilities published in March 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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.
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
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