Fitch to Take Various Rating Actions on Mass DOT Metro Hwy Sys Subordinated Ser 2010A-2
OREANDA-NEWS. On the effective date of April 5, 2016, Fitch Ratings will revise the long-term rating to 'AAA' from 'AA' and upgrade the short-term rating to 'F1+' from 'F1' on the Massachusetts Department of Transportation metropolitan highway system revenue bonds (subordinated) commonwealth contract assistance secured, variable rate demand obligations 2010 series A-2. The Rating Outlook is Stable for the long-term rating.
The rating actions will be in connection with the (i) April 5, 2016, mandatory tender and reoffering of the bonds; and the (ii) substitution of the Bank of Tokyo-Mitsubishi UFJ, Ltd. (rated 'A/F1', Stable Outlook) standby bond purchase agreement securing the bonds with an irrevocable direct-pay letter of credit (LOC) to be provided by Landesbank Hessen-Thuringen Girozentrale (Helaba; 'A+/F1+', Stable Outlook).
KEY RATING DRIVERS
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 Helaba, 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 press release dated, April 28, 2015 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 Helaba, 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 regularly scheduled payments of principal of and interest on the bonds in addition to payments due upon maturity and redemption, as well as purchase price for tendered bonds. The LOC has a stated expiration date of April 12, 2021, unless extended or earlier terminated, and provides full and sufficient coverage of principal plus an amount equal to 198 days of interest at a maximum rate of 12% based on a year of 365 days and purchase price for tendered bonds, while in the weekly rate mode. The Remarketing Agent for the bonds is Wells Fargo Securities. The bonds are expected to be delivered on or about April 5, 2016.
The bonds will bear interest at a weekly rate, but may be converted to a daily, bond interest term, indexes, or long-term rate. While bonds bear interest in the weekly rate mode, interest payments are on July 1 and January 1. The scheduled interest payment date is July 1, 2016. The trustee is obligated to make timely draws on the LOC to pay principal, interest, and purchase price. 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 trustee 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; (2) upon expiration, substitution or termination of the LOC; (3) following receipt of written notice from the bank of an event of default under the Reimbursement Agreement, and (4) following receipt of notice from the bank that the interest component will not be reinstated directing such mandatory tender. Optional and mandatory redemption provisions also apply to the bonds. There are no provisions for the issuance of additional bonds.
As described above, 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 that rating.