The rating actions are in connection with the substitution of the standby bond purchase agreement (SPBA) provided by Bank of Nova Scotia (rated 'AA-/F1+'; Stable Outlook by Fitch) with an irrevocable standby letter of credit (LOC) to be provided by Royal Bank of Canada (RBC, rated 'AA/F1+; Stable Outlook).
KEY RATING DRIVERS
On the effective date the long-term rating will be determined using Fitch's dual-party pay criteria and is based jointly on the underlying rating assigned to those bonds by Fitch (currently rated 'AA'; Stable Outlook), and the rating assigned by Fitch to RBC which provides the LOC supporting the bonds. The short-term 'F1+'' rating is based solely on the LOC.
For information about the underlying credit rating see the new issue report dated
Fitch's dual-party pay criteria consider the likelihood of the failure of both a rated obligor and a bank LOC provider. The methodology results in a long-term rating that is up to two notches higher than the stronger of the two credits if the following conditions are met: (1) both entities have a rating of 'A' or higher; (2) the transaction is structured such that payments from both the municipal issuer and the bank are in the flow of funds and both entities would have to fail to perform before the bonds defaulted; and (3) the credit of the bank and the rated obligor have no more than a medium degree of correlation. Fitch has determined a low degree of correlation between RBC and the obligor which results in a long-term rating of 'AAA' for the bonds. If either the underlying bond rating or the bank rating were downgraded to 'A-' or lower, the dual-party pay criteria could no longer be applied, and the long-term rating assigned to the bonds would then be adjusted to the higher of the bank rating and the underlying bond rating.
The bank is obligated to make payments of purchase price for tendered bonds, including bonds that are required to be tendered upon any failure of the City to provide funds to Bank of New York Mellon, as fiscal agent, for the payment of principal and interest on the bonds on a payment date. The ratings will expire upon the earliest of: (a)
The bonds will continue to bear interest at a daily rate but may be converted to a weekly, two-day, commercial paper, stepped coupon, auction, term or fixed rate mode. Bondholders may tender their bonds on any business day with prior notice when the bonds bear interest in the daily, two-day and weekly rate modes. While the bonds bear interest in the daily rate mode, interest payments are on the first business day of each month. Funds drawn under the LOC are held uninvested and are free from any lien prior to that of the bondholders.
The bonds are subject to mandatory tender: (1) upon conversion of the interest rate; (2) upon the expiration or termination of the LOC; (3) upon the substitution of the LOC if such substitution results in a reduction or withdrawal of the rating assigned to the bonds; (4) following the receipt of written notice from the bank of an event of default under the LOC directing such mandatory tender; and (5) upon failure by the City to timely provide funds to the Fiscal Agent at maturity or on a redemption date or interest payment date. Optional and mandatory redemption provisions also apply to the bonds. Bond proceeds were used to finance capital projects for the City.
As described above, the long-term rating is tied to the long-term rating assigned to the bond obligor and the long-term rating that Fitch maintains on the bank providing the substitute LOC. Changes to one or both of these ratings may affect the long-term rating assigned to the bonds.
The short-term rating is exclusively tied to the short-term rating that Fitch maintains on the bank providing the substitute LOC and will reflect all changes to that rating.
Additional information is available at www.fitchratings.com.
--'U.S. Municipal Structured Finance Criteria' (
--'Rating Guidelines for Letter of Credit-Supported Bonds and Commercial Paper' (
--'Dual-Party Pay Criteria for Long-Term Ratings on LOC-Supported U.S. Public Finance Bonds' (
U.S. Municipal Structured Finance Criteria
Rating Guidelines for Letter of Credit-Supported Bonds and Commercial Paper
Dual-Party Pay Criteria for Long-Term Ratings on LOC-Supported U.S. Public Finance Bonds
Source: Fitch Ratings
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