NOTE: On August 30, 2018, the press release was corrected as follows: The second sentence of the “Expiration” paragraph was changed to the following: “The stated expiration date for the Series 2003A-1 LOC is August 26,2022. The stated expiration date for the Series - 2005B4 and 2005B7 LOCs is May 1, 2020.” Revised release follows.
New York, August 29, 2018 -- Moody's Investors Service has: (i) confirmed the long-term
Aa1 rating of the letter of credit-backed State of California (Issuer)
Kindergarten-University Public Education Facilities Bonds,
Series 2003A-1, 2005B4 and 2005B7 (Series 2003A-1,
Series 2005B4 and Series 2005B7), (ii) affirmed the Aa1 rating of
the letter of credit-backed State of California Kindergarten-University
Public Education Facilities Bonds, Series 2003C-1 (Series
2003C-1 and, together with Series 2003A-1, Series
2005B4 and Series 2005B7, the Bonds), and (iii) affirmed the
short-term VMIG 1 ratings on the Bonds in connection with the issuance
of alternate letters of credit (LOC). The substitute LOCs supporting
Series 2003A-1, 2005B4 and 2005B7 will be provided by Barclays
Bank PLC (Barclays) and the substitute LOC supporting Series 2003C-1
will be provided by TD Bank, N.A. (TD Bank and,
together with Barclays, the Banks).
RATINGS RATIONALE
Upon the effective date of the alternate LOCs, currently scheduled
for August 29, 2018, the long-term ratings 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 Assessment (CR Assessment)
of the Banks, as providers of the LOCs, and the rating of
the Issuer; (ii) the probability of default in payment by the Banks
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 Barclays are A2(cr) and P-1(cr), respectively.
Moody's current long-term and short-term CR Assessments
of TD Bank are Aa3(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 each
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 Banks.
FACTORS THAT COULD LEAD TO AN UPGRADE
• Long-Term: Moody's upgrades the long-term CR
Assessment of the Banks or upgrades 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 Banks or downgrades the underlying rating of the
Bonds.
• Long-Term: Moody's assessment of the level of default
dependence between the Banks and the Issuer increases.
• Short-Term: Moody's downgrades the short-term
CR Assessment of the Banks.
Each LOC is sized for the current principal amount of 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 applicable LOC, in
accordance with its terms, in order to receive sufficient funds
to make timely payment of principal and interest to the bondholders.
In the event that the Bank fails to honor any valid draw on a 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 each 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 a Bank due to a failed remarketing will be delivered to the applicable
Bank but will not be remarketed to a new holder until the tender agent
has received confirmation from such Bank stating that the applicable 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 applicable LOC. Prior to the termination or
expiration of each LOC the Bonds are subject to mandatory tender as follows:
• Expiration: mandatory tender not less than five (5) days
prior to the expiration of LOCs, unless such expiration coincides
with a conversion or substitution of a new bank, in which case the
mandatory tender for conversion or substitution of a bank shall have occurred.
The stated expiration date for the Series 2003A-1 LOC is August 26,2022. The stated expiration date for the Series - 2005B4 and 2005B7 LOCs is May 1, 2020. The stated expiration date for the Series 2003C-1 LOC is August 28, 2023.
• Substitution: The Series 2003A-1 and 2003C-1
bonds are subject to mandatory tender not less than five (5) days prior
to the substitution date, unless such substitution coincides with
a conversion, in which case the mandatory tender for conversion
shall occur. The Series 2005B4 and 2005B7 bonds are subject to
mandatory tender on the substitution date. The LOCs terminate five
(5) days following receipt by the Bank of notice from the tender agent
stating that the LOC has been substituted.
• Interest rate conversion: mandatory tender on each interest
rate conversion date; the LOCs terminate 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 Banks honor a draw on the applicable LOC on or after the conversion
date and (iii) the date the applicable 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 applicable Bank; the
LOCs terminate 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 each 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 Series 2003A-1 and 2005B7 Bonds will be remarketed in the daily
rate mode with interest payable on the first business day of each month.
The Series 2003C-1 and 2005B4 Bonds will be remarketed in the weekly
rate mode with interest payable on the first business day of each month.
The rate on the Bonds may be converted, in whole, to the daily,
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 were 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.
Ashley Staropoli
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
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
