S&P: Mesirow Financial Inc. Series 2016-XM Trusts Assigned 11 Ratings
The long-term components of the ratings on the floaters and the ratings on the residuals reflects the ratings on the underlying bonds. The short-term components of the ratings, which only applies to the floaters, reflects the liquidity agreement from JPMorgan Chase Bank N. A.
The trusts are issued under the common document initiative using gross liquidity. For these transactions, Municipal Funding Services LLC is the trustor and Mesirow Financial Inc. is administrative agent.
The receipts were formerly issued as floater and residual certificates under individual trust agreements. The CUSIPs associated with the former receipts have been exchanged for new CUSIPs and issued as floater and residual receipts under new individual trusts. The trustee will transfer the underlying bonds to the new individual trusts and issue new certificates. The exchange and conversion date is July 21, 2016.
The liquidity agreement provides for the payment of the purchase price of tendered floaters by making a loan to the trust in an amount equal to the principal amount and a maximum of 185 days' interest at the bond rate on unremarketed floaters bearing interest in the daily or weekly rate modes. The liquidity agreement is due to expire on July 20, 2017, unless extended or terminated beforehand pursuant to its terms. At such time, if the liquidity agreement has not been extended, or if an alternate liquidity facility has not been delivered, we will remove the short-term component of the rating on the floaters.
Each receipt holder evidences a beneficial interest in trust assets and the right to future principal, interest, and premium payments, if any, on a beneficial interest in the underlying bonds, as well as the right to receive future distributions of underlying trust assets, if any.
Floater holders have a put option and, therefore, the right to receive the purchase price from amounts received under the liquidity agreement upon a failed remarketing or the sale of bonds under a liquidity scenario. Residual holders, by contrast, do not have a put option.
Although floaters initially bear interest in the weekly rate mode, they could be converted to the daily rate mode that fall between one day and 364 days as specified in the terms of the trust.
During the daily and weekly modes, floater holders can optionally tender their receipts by providing appropriate notice, at which time such floaters are subject to remarketing. Following such a remarketing and, if applicable, optional loan from the voluntary advance provider--or in the case of a failed remarketing, following the sale of the bonds or a liquidity draw--floater holders are entitled to receive the purchase price for tendered floaters. If floaters are not successfully remarketed on or before the purchase date, the trustee will direct the remarketing agent to cause a sale of bonds. The trustee will use such proceeds--together with amounts drawn on the liquidity facility, if necessary--to pay the purchase price. We understand that as part of the liquidity process, a portion of the underlying bonds is allocated to residual holders and referred to as reserved bonds under trust documents. Upon a shortfall in sale proceeds, reserved bonds are distributed to residual holders.
Floaters are also subject to mandatory tender upon the occurrence of certain events as detailed in trust documents. These events include: The expiration, termination, and substitution of the liquidity agreement; orA mode-rate conversion. As is the case with optional tenders, the liquidity provider ultimately provides funds to pay the purchase price through a loan to the trust. There are certain events, however, in which floaters are not subject to remarketing but will be purchased with proceeds from the sale of bonds or funds under the liquidity agreement. Certain mandatory tender events, however, allow floater holders to exercise an affirmative option to retain their receipts in lieu of receiving the purchase price.
Furthermore, if the bank providing the liquidity agreement or the remarketing agent are found to not be in compliance with the Dodd-Frank Wall Street Reform & Consumer Protection Act, we understand floaters are then subject to mandatory tender, coupled with a simultaneous redemption of residuals.
Upon the occurrence of a tender-option-termination event (TOTE), the liquidity agreement will terminate without notice to floater holders. These events constitute TOTEs: An act of bankruptcy by the underlying obligor and principal credit source, The failure to pay principal and interest on the underlying bonds by both the underlying obligor and principal credit source, The lowering of the rating on the underlying bonds below 'BBB-', andAn event of taxability with respect to the underlying bonds. The ratings do not reflect our opinion of the likelihood receipt holders will receive the full and timely payment of any premiums or gain share payments, and they do not reflect our opinion of the likelihood that such payments would be subject to the bankruptcy filing of the funding entity. The receipts are also subject to whole or partial redemption of the underlying bonds.
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