News Column

Fitch to Revise L-T & Confirm S-T Ratings for NYC GO Bds Fiscal 2012 Series A, Subseries 2012 A-5

June 26, 2014

NEW YORK--(BUSINESS WIRE)-- On the effective date of June 30, 2014, Fitch Ratings will (i) revise the long-term rating to 'AAA' from 'AA' and (ii) confirm the short-term rating at 'F1+' assigned to the $50,000,000 The City of New York General Obligation Bonds, Fiscal 2012, Series A, Subseries A-5 (Adjustable Rate Bonds). The rating Outlook is stable for the long-term rating.

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 June 11, 2014 for the New York City, New York $850MM General Obligation Bonds, 2014 available at 'www.fitchratings.com'.

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) June 29, 2017, the initial stated expiration date of the substitute LOC, unless such date is extended; (b) conversion to a mode other than daily, two day, or weekly rate modes; (c) any prior termination of the LOC; and (d) defeasance of the bonds. The substitute LOC provides full and sufficient coverage of principal plus an amount equal to 35 days of interest at a maximum rate of 9% based on a year of 365 days and purchase price for tendered bonds, while in the daily, two-day and weekly rate modes. RBC Capital will be the remarketing agent for the bonds.

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.

RATING SENSITIVITIES

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.

Applicable Criteria and Related Research:

--'U.S. Municipal Structured Finance Criteria' (Feb. 24, 2014);

--'Rating Guidelines for Letter of Credit-Supported Bonds and Commercial Paper' (June 2, 2014);

--'Dual-Party Pay Criteria for Long-Term Ratings on LOC-Supported U.S. Public Finance Bonds' (March 8, 2013).

Applicable Criteria and Related Research:

U.S. Municipal Structured Finance Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=736618

Rating Guidelines for Letter of Credit-Supported Bonds and Commercial Paper

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749431

Dual-Party Pay Criteria for Long-Term Ratings on LOC-Supported U.S. Public Finance Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=701572

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Linda Friedman, +1 212-908-0727

Senior Director

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Richard Park, +1 212-908-0289

Director

or

Committee Chairperson

Mario Civico, +1 212-908-0796

Senior Director

or

Media Relations:

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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