Fitch Takes Various Rating Actions on NYC GOs, Fiscal 2018 Ser. E, Subseries E-5 Adj. Rate.
KEY RATING DRIVERS
The Long-Term rating has been 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 support provided by the irrevocable letter of credit (LOC) provided by TD Bank, N.A. (rated AA-/F1+/Stable) The Short-Term 'F1+' rating is based solely on the LOC. For information about the underlying credit rating see the press release dated Feb. 23, 2018 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 interest rate modes to be covered by Fitch's rating provide for either a mandatory purchase at the end of each interest rate period, or a purchase demand option. A one or two notch uplift will apply to the long term rating depending on the frequency of the purchase demand option or the duration of the interest rate period which concludes with a mandatory tender.
The bonds provide holders with a tender option consistent with a two notch uplift: (i) in the daily rate mode with notice delivered by 10:30 am NY time on the purchase date; (ii) in the weekly rate mode with seven days prior notice; and (iii) in the two-day rate mode with notice delivered by 3:00 pm NY time with at least 2 business day prior notice before the purchase date. Fitch will apply a two-notch uplift, 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.
Pursuant to the LOC, 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 rating will expire upon the earliest of: (a) March 10, 2023, the initial stated expiration date of the LOC, unless such date is extended; (b) conversion of the interest rate on the E-5 bonds to a mode other than a daily, two-day or weekly rate mode; (c) any prior termination of the LOC; and (d) defeasance of the bonds. The 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. The remarketing agent for the bonds is TD Securities. The bonds are expected to be delivered on or about March 13, 2018.
The bonds initially bear interest at a daily rate. The bonds may be converted to a two-day, weekly, commercial paper, stepped coupon, auction, term or fixed rate. While bonds bear interest in the daily rate mode, interest payments are on the first business day of each month, commencing April 2, 2018. Funds drawn under the LOC are held uninvested and are free from any lien prior to that of the bondholders.
Holders may tender their bonds on any business day, provided the tender agent and remarketing agent are given the requisite prior notice of the purchase. The bonds are subject to mandatory tender: (1) upon conversion of the interest rate mode; (2) upon expiration or termination of the respective LOC; (3) upon substitution of the respective 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 respective 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 redemption provisions also apply to the bonds.
Bond proceeds will be used to finance capital projects for the City.
The Long-Term rating is tied to the long-term rating assigned to the bonds and the long-term rating that Fitch maintains on the bank providing the 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 LOC; and will reflect all changes to the rating.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||May 14, 2018|
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