NEW YORK--(BUSINESS WIRE)--Fitch Ratings has revised the Long-term rating to 'AA+' and has assigned a Short-term rating of 'F1' to the Arizona Health Facilities Authority (Banner Health) revenue bonds consisting of $100,630,000 series 2015B and $100,630,000 series 2015C. The Rating Outlook is Stable for the Long-term rating.
KEY RATING DRIVERS
The Long-term rating is 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 the Bank of Tokyo-Mitsubishi UFJ, LTD (rated 'A/F1'; Stable Outlook), for series 2015B and Bank of America, N.A. (rated 'A+/F1'; Stable Outlook) for series 2015C. Each bank provides an irrevocable direct-pay letter of credit (LOC) supporting the bonds. The short-term 'F1' rating is based solely on the respective LOCs. For information about the underlying credit rating see press release dated Oct. 20, 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 Bank of Tokyo-Mitsubishi UFJ, LTD for series 2015B and Bank of America, N.A. for series 2015C and the obligor which results in a Long-term rating of 'AA+' for each series of bonds. If either the underlying bond rating or the respective bank's 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 respective bank rating and the underlying bond rating.
The banks are 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 LOCs have a stated expiration date of Nov. 4, 2021 for the Series 2015B and Nov. 4 2020 for the Series 2015C, unless extended or earlier terminated. The LOCs provide full and sufficient coverage of principal plus an amount equal to 45 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 and daily rate modes. The Remarketing Agents are Morgan Stanley & Co. LLC for the Series 2015B and J.P. Morgan Securities LLC for the Series 2015C. The bonds are expected to be delivered on or about Nov. 5, 2015.
Both series of bonds will initially bear interest at a weekly rate, but may be converted to a daily, two-day, FRN, RTV, Window, short-term, long-term or fixed rate. While bonds bear interest in the weekly rate mode, interest payments are on the first business day of each month, commencing Dec. 1, 2015. The trustee is obligated to make timely draws on each respective LOC to pay principal, interest, and purchase price. Funds drawn under each 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 each respective LOC; and (3) following receipt of written notice from the respective bank of an event of default under the Reimbursement Agreement. The bank has the option of directing acceleration rather than a mandatory tender upon an event of default under the Reimbursement Agreement. The bonds shall be accelerated following trustee's receipt of notice of a non-reinstatement of the LOC interest. Optional and mandatory redemption provisions also apply to the bonds. There are no provisions for the issuance of additional bonds.
Bond proceeds will be used to finance, refinance and reimburse the acquisition, construction, renovation, improvement, furnishing, and equipping of certain capital improvements on the campuses of certain of the health facilities.
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 each bank providing the LOC. Changes to one or both of these ratings may affect the long-term rating assigned to the respective 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.
Additional information is available at www.fitchratings.com.
Dual-Party Pay Criteria for Long-Term Ratings on LOC-Supported U.S. Public Finance Bonds (pub. 08 Mar 2013)
Rating Guidelines for Letter of Credit-Supported Bonds and Commercial Paper (pub. 21 May 2015)
U.S. Municipal Structured Finance Criteria (pub. 23 Feb 2015)
Dodd-Frank Rating Information Disclosure Form