Fitch to Downgrade S.F. (CA) Intl Airport 2nd Ser VR Rfdg Bnds, Issues 36B and 36C to 'AA/F1'

NEW YORK--()--On the effective date of April 25, 2014, Fitch Ratings will downgrade the ratings assigned to the San Francisco International Airport second series variable rate refunding bonds $40,620,000 Issue 36B and $36,145,000 Issue 36C (the bonds) to 'AA/F1', Stable Outlook, from 'AA+/F1+', Stable Outlook.

The rating actions are in connection with: (i) the substitution of the two irrevocable direct-pay letters of credit (LOCs) issued by U.S. Bank, National Association (rated, 'AA-/F1', Stable Outlook), which currently provide credit support for the bonds, with two substitute LOCs to be issued by Bank of Tokyo Mitsubishi UFJ, Limited (BTMU, rated 'A/F1, Stable Outlook) and (ii) the mandatory tender of both the Issues 36B and 36C on April 25, 2014.

KEY RATING DRIVERS:

The long-term ratings assigned to the bonds will continue to be determined using Fitch's dual-party pay criteria and will be based jointly on the underlying rating assigned by Fitch to the bonds cited above (rated 'A+', Stable Outlook), and the rating assigned by Fitch to BTMU which will provide the two substitute LOCs as support for the bonds. The short-term 'F1' rating will be based solely on the BTMU substitute LOCs.

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 BTMU and the obligor which results in a rating of 'AA', Stable Outlook 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 BTMU substitute LOCs, the bank is obligated to make regularly scheduled payments of principal of and interest on the bonds in addition to payments due upon maturity, acceleration and redemption, as well as purchase price for tendered bonds. The rating will expire on April 25, 2018, the stated expiration date of each BTMU substitute LOC, unless such date is extended; any change in mode from the weekly rate mode; any prior termination of the substitute LOCs; or defeasance of the bonds.

The Remarketing Agent for the Issue 36B bonds is Wells Fargo Securities. Merrill, Lynch, Pierce Fenner & Smith is the remarketing agent for the Issue 36C bonds.

RATING SENSITIVITIES:

As described above, the long-term rating is tied to the long-term rating assigned to the revenue bonds of San Francisco International Airport and the long-term rating that Fitch maintains on the bank providing the substitute LOCs. 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', June 14, 2013;

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

Applicable Criteria and Related Research:

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

Rating Guidelines for Letter of Credit-Supported Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710476

U.S. Municipal Structured Finance Criteria

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

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.

Contacts

Fitch Ratings
Linda Friedman
Senior Director
+1-212-908-0727
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Richard Park
Director
Secondary Analyst
+1-212-908-0289
or
Committee Chairperson
Trudy Zibit
Managing Director
+1-212-908-0689
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Linda Friedman
Senior Director
+1-212-908-0727
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Richard Park
Director
Secondary Analyst
+1-212-908-0289
or
Committee Chairperson
Trudy Zibit
Managing Director
+1-212-908-0689
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com