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By clicking “I AGREE”, you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s information that becomes accessible to you (the “Information”). References herein to “Moody’s” include Moody’s Corporation. and each of its subsidiaries and affiliates..

 

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Rating Action:

Moody's upgrades to Aa3 Morgan Stanley & Co. LLC (Municipal Deriv.) Custody Receipts, Series 2021-MS0002A & 2021-MS0002B

16 Aug 2022

New York, August 16, 2022 -- Moody's Investors Service ("Moody's") has upgraded to Aa3 from A1 the enhanced ratings of Morgan Stanley & Co. LLC (Municipal Deriv.) Custody Receipts, Series 2021-MS0002A and 2021-MS0002B (the Custody Receipts) evidencing beneficial ownership of Arlington Higher Education Finance Corporation, TX's Education Revenue Bonds (BASIS Texas Charter Schools, Inc.), Series 2021 & Series 2022 (the Bonds).  The Custody Receipts are supported by a letter of credit (LOC) from Morgan Stanley Municipal Funding, Inc. and a guarantee from Morgan Stanley.  The upgrade is a result of the issuance of ratings on the underlying bonds and the amendments to the documents to support the application of Moody's Joint Default Analysis.  The amendments are scheduled to be effective August 15, 2022.

RATINGS RATIONALE

The ratings are based upon Joint Default Analysis (JDA), which reflects Moody's approach to rating jointly supported transactions. The JDA ratings are based on the long-term senior unsecured rating, A1, of Morgan Stanley as provider of the guarantee on the LOC, the underlying ratings of the Bonds deposited, and the structure and legal protections of the transactions which provide for timely payment of debt service to Custody Receipt holders. Moody's underlying ratings on the Bonds are Ba3.

Since a payment default on the Custody Receipts would occur only if both Morgan Stanley and BASIS Texas Charter Schools, Inc. (the Obligor) default on bond principal and interest payment dates, Moody's has assigned the rating based upon the joint probability of default by both parties. In determining the joint probability of default, Moody's considers the level of default dependence between Morgan Stanley and the Obligor. In this case, Moody's has determined that there is a low level of default dependence between Morgan Stanley and the Obligor which results in a long-term JDA rating of Aa3 on the Custodial Receipts.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

• Moody's upgrades either the long-term rating of Morgan Stanley, or the long-term underlying rating of the Bonds.

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

• Moody's downgrades either the long-term rating of Morgan Stanley, or the  long-term underlying rating of the Bonds.

• Moody's determines that the default dependence between the Obligor and Morgan Stanley increased.

The Custody Receipts are entitled to interest on each Bond payment date (semiannually) at the fixed rate on the Bonds less any fees required to be paid to the LOC provider and the custodian. The custodial agreement allows for the issuance of additional Custody Receipts with a corresponding increase to the LOC.

The Custody Receipts are subject to tender on the business day prior to the expiration or termination date of the LOC. Provided however, if the LOC fails to honor a draw for such tender, the tender shall be cancelled, and the LOC shall remain in effect. The Custody Receipts will remain outstanding supported by the underlying Bonds and the LOC (and guarantee). The Custody Receipts are subject to redemption upon redemption of the Bonds.

The LOC is sized for the full principal amount of the Custody Receipts plus 185 days of interest at the Bond rate, which will provide sufficient principal, interest and purchase price coverage for the Custody Receipts. Substitution of the letter of credit is not permitted.

Conforming draws for principal and/or interest or purchase price presented to the Bank at or before 12:00 noon, New York time, on a business day, will be honored by the Bank at or before 2:00 p.m., New York time, on the same business day. The custodian is instructed to draw on the LOC by 12:00 noon, New York time on any payment date. If Morgan Stanley fails to honor a draw under the LOC for any payment of principal and/or interest, the custodian is instructed to utilize funds received from the Bonds to make such payments to bondholders.  Draws made under the letter of credit for interest shall be automatically reinstated immediately upon an honoring of a draw.

The LOC will terminate upon the earliest of: (i) the Bank honoring a tender drawing, (ii) the day on which the Bank receives a certificate stating that the principal and accrued interest components of the Bonds have been paid in full and have been satisfied and discharged and the Bank has paid all drawings payable, (iii) the 5th (fifth) business day following the date on which the custodian receives a Notice of Termination Event, (iv) the day on which all of the Bonds are released to the LOC provider or to the holders of Custody Receipts, in each case in accordance with the custodial agreement, (v) the 5th (fifth) business day following the date on which the custodian receives a Notice of Early Termination and (vi) the expiration date (October 15, 2022).  Provided however, that if on the (i) expiration date the LOC has not paid all amounts due, then the expiration date shall be automatically extended to a date which is six months from the date of the then existing expiration date and (ii) earlier termination of the LOC pursuant to its terms the LOC has not paid all amounts due, then any Notice of Early Termination or Notice of Termination Event delivered in connection with such early termination of the LOC is deemed immediately rescinded and shall be void.

The principal methodology used in these ratings was Tender Option Bonds and Related Instruments published in February 2018 and available at https://ratings.moodys.com/api/rmc-documents/63933. An additional methodology used in these ratings was Guarantees, Letters of Credit and Other Forms of Credit Substitution Methodology published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/386295. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.

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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

Please see https://ratings.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 issuer/deal page on https://ratings.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

No Related Data.
© 2023 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service, Inc. and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Charter Documents - Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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