NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns a rating of 'AAApre' to the $1,395,040,000 State of California (State) various purpose general obligation bonds (the 'refunded bonds') as follows:
--Dated June 1, 2006 and maturing Sept. 1, 2033 and 2035;
--Dated Sept 1, 2006 and maturing Sept. 1, 2033 and Sept. 1, 2036;
--Dated Nov. 1, 2006 and maturing Oct. 1, 2036;
--Dated Feb. 1, 2007 and maturing Dec. 1, 2027 and Dec. 1, 2032- 2036 (partial refunding of all maturities);
--Dated June 1, 2007 and maturing June 1, 2025-2027, June 1, 2032 and June 1, 2037 (partial refunding of all maturities).
The Rating Outlook is Stable.
KEY RATING DRIVERS
The 'AAApre', Stable Outlook rating is based on the pledge of securities in the irrevocable escrow fund securing the bonds and reflects the lien of the refunded bondholders on the escrow trust fund and that all amounts have been invested in State and Local Government Securities (SLGS), which are direct non-callable obligations of the United States. The U.S. full faith and credit is currently rated 'AAApre', Stable Outlook by Fitch.
Fitch also maintains an unenhanced rating of 'A+', Stable Outlook on the bonds based on the GO pledge of the state's full faith and credit (rated 'A+', Stable Outlook by Fitch). The bonds remain a general obligation of the state even though the source of repayment is expected to be the securities in the escrow deposit fund, further described below. For more information on the State of California GO rating, see press release 'Fitch Rates California $2.3B GOs 'A+'; Outlook Stable' dated Feb. 25, 2016 available at 'www.fitchratings.com'.
The bonds were refunded on March 17, 2016 with proceeds of the State's tax-exempt various purpose general obligation refunding bonds. The ratings apply to the refunded bonds listed by CUSIP numbers, below. The refunded bonds dated June 1, 2006 and Sept. 1, 2006 will be redeemed on Sept. 1, 2016; the refunded bonds dated Nov. 1, 2006 will be redeemed on Oct. 1, 2016; the refunded bonds dated Feb. 1, 2007 will be redeemed on Dec. 1, 2016; and the refunded bonds dated June 1, 2007 will be redeemed on June 1, 2017, all at par plus accrued interest.
Pursuant to an irrevocable escrow certificate, the State Treasurer, as escrow agent, holds a separate special irrevocable escrow fund, established by the State Controller within the State's Treasury, in trust for the benefit of the refunded bondholders. All cash and securities held in this fund are pledged irrevocably to the payment when due of interest on the refunded bonds and the payment of principal upon redemption. In the future, any substitute or additional investments are limited to non-callable obligations of the United States.
Grant Thornton verified the mathematical accuracy of computations relating to the adequacy of income from escrowed funds to pay debt service requirements of the refunded bonds. These computations were contained in schedules provided to them by Citigroup Global Markets, Inc., underwriter for the refunding bonds. According to the Grant Thornton verification report, the anticipated receipts from the securities and cash deposited will produce amounts necessary to provide for the timely payment of interest when due and principal upon redemption. Prior to accepting substitute investment securities or disbursing funds to the State, the escrow agent must receive a new report of independent certified public accountants verifying the continued sufficiency of escrowed funds to meet all future payments of principal and interest on the refunded bonds.
The rating is exclusively tied to the U.S. sovereign creditworthiness and will reflect all changes to that rating.
The 'AAApre', Stable Outlook rating applies to the bonds with the following CUSIP numbers:
Additional information is available at www.fitchratings.com.
Guidelines for Rating Prerefunded U.S. Municipal Bonds (pub. 09 Dec 2014)
U.S. Municipal Structured Finance Criteria (pub. 23 Feb 2015)
Dodd-Frank Rating Information Disclosure Form