NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the long-term rating at 'AAA' and the short-term rating at 'F1+' assigned to the $125,000,000 New York City, NY general obligation (GO) bonds, series 2006I, subseries I-4. The Rating Outlook for the long-term rating is Stable.
The rating action is in connection with the substitution of the irrevocable standby letter of credit (LOC) previously provided by CalPERS ('AAA/F1+', Outlook Stable) with a substitute LOC issued by TD Bank, N.A. ('AA-/F1+', Outlook Stable).
KEY RATING DRIVERS
The long-term rating will continue to be determined using Fitch's dual-party pay criteria and will be based jointly on the underlying rating assigned to those bonds by Fitch ('AA', Outlook Stable), and the rating assigned by Fitch to TD Bank, N.A. ('AA-/F1+', Outlook Stable), which provides the substitute LOC as support for the bonds. The short-term 'F1+' rating is based solely on the substitute LOC. For information about the underlying credit rating, see Fitch's press release dated May 13, 2016 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 with no more than seven days' notice in the interest rate modes rated by Fitch. 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.
Bond documents and statutes require the city to make regularly scheduled payments of principal and interest on the bonds. If, however, the city fails to provide funds for an interest or principal payment by 11 a.m. NY time on the due date, bonds are subject to mandatory tender and the purchase price will be paid with a drawing on the LOC. In addition, whenever remarketing proceeds are insufficient to pay the purchase price of tendered bonds, the tender agent will draw on the LOC for the deficiency. The LOC has a stated expiration date of May 24, 2019 unless earlier terminated, and 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. The Remarketing Agent for the bonds is TD Securities.
RATING SENSITIVITIES
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 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
Rating Criteria for Letter of Credit-Supported Bonds and Commercial
Paper (pub. 05 Apr 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878782
U.S. Municipal Structured Finance Criteria (pub. 23 Feb 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=862222
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005160
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005160
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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