NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded the long-term rating to 'AAA' from 'AA+' and affirmed the short-term rating of 'F1' assigned to the Community Development Administration Maryland Department of Housing and Community Development (Maryland CDA) residential revenue bonds, series 2007F and 2008D. The Rating Outlook is 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 (currently rated 'AA'/Stable Outlook), and the rating assigned by Fitch to PNC Bank, N.A. (rated 'A+'/Stable Outlook), which provides the letters of credit (LOCs) as support for the bonds. The short-term 'F1' rating is based solely on the LOCs. The upgrade to 'AAA' reflects application of Fitch's revised criteria for dual-party pay, which was released on April 5, 2016. For information about the underlying credit rating see Fitch's press release dated Aug. 31, 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 each business day in the daily interest rate mode and upon seven days' notice in the weekly interest rate mode, both of which modes are rated by Fitch. Fitch will apply a two-notch uplift which results in a long-term rating of 'AAA' for the bonds.
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 July 1, 2017, unless extended or earlier terminated, and provides full and sufficient coverage of principal plus an amount equal to 187 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 daily and weekly rate modes.
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. 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 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
Rating Criteria for Letter of Credit-Supported Bonds and Commercial Paper (pub. 05 Apr 2016)
U.S. Municipal Structured Finance Criteria (pub. 23 Feb 2015)
Dodd-Frank Rating Information Disclosure Form
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