NEW YORK--(BUSINESS WIRE)--Fitch Ratings has revised the rating on Alhambra, CA insured $29,945,000 revenue refunding bonds (Atherton Baptist Homes Project) series 2016 to 'AA-' from 'BB', based on the support provided by the Cal-Mortgage Loan Insurance Division.
The bonds are expected to sell via negotiated sale Oct. 19, 2016.
The Rating Outlook is Stable.
SECURITY
The bonds will be insured by the State of California Office of Statewide Health Planning and Development (OSHPD). If moneys are not available to pay debt service, OSHPD will be obligated to continue to make payments on the bonds; if necessary, the state's treasurer will issue debentures to holders of the bonds fully and unconditionally guaranteed by the State of California.
KEY RATING DRIVERS
STATE ENHANCEMENT LINKED TO GO RATING: The rating is based on the support provided by the Cal-Mortgage Loan Insurance Division of the State of California. The state's treasurer is required to issue debentures on parity with the state's general obligation (GO) bonds if defaults on loans deplete the reserve balance in the health facility construction loan insurance fund (HFCLIF). This results in a rating on par with that assigned to state GO bonds.
SEVERAL LAYERS OF PROTECTION: The rating is ultimately linked to the state treasurer's ability to issue debentures on parity with state GO bonds. Prior to that, several layers of protection ensure timely bondholder payment in the event a program participant defaults, and provides ample time to ensure bondholder payment.
RECENT STATE GO UPGRADE: Institutionalized changes to fiscal operations in recent years, when combined with the ongoing economic and revenue recovery, have enabled the state to materially improve its financial position, enhancing its ability to address future fiscal challenges. Fitch upgraded the state's GO rating to 'AA-' from 'A+', on Aug. 12, 2016.
RATING SENSITIVITIES
PROGRAM CHANGES OR SHIFTS IN STATE CREDIT QUALITY: The rating is sensitive to changes to existing Cal-Mortgage program parameters, or to changes in the state's GO bond rating, to which this rating is linked.
CREDIT PROFILE
Cal-Mortgage is a division of the State of California OSHPD. Cal-Mortgage's mission is to improve access to capital for qualifying health care facilities without cost to taxpayers. The agency primarily guarantees debt issued on behalf of nonrated and below-investment grade health care institutions that demonstrate community need. Bond proceeds will be used by Atherton Baptist Homes, a non-profit public benefit corporation that owns and operates a Type C continuing care retirement community (CCRC), to refund outstanding bonds for debt service savings.
The Cal-Mortgage program was originally authorized by voters in 1968. As of June 30, 2016, Cal-Mortgage insured $1.64 billion in outstanding loans covering 91 facilities. The statutory maximum for insured risk is $3 billion, although this level has never been reached. The bonds have access to the health facility construction loan insurance fund (HFCLIF), a special fund which receives fee and premium income, among other receipts, and is segregated from the state's general fund and unavailable for general fund cash flow purposes. The HFCLIF balance was $166.6 million as of June 30, 2016.
In the event of a default by an insured borrower, debt service reserves and the HFCLIF balance are available to bondholders. If defaults on insured loans ever caused the HFCLIF and debt service reserves to be depleted, statutes and transaction documents require the state treasurer to issue debentures on parity with the state's GO bonds in the amount of principal and interest due but not paid, at a payment schedule and coupon rate identical to those of the bonds associated with the defaulted loan. These provisions support a rating on Cal-Mortgage equal to that of the state's GO bonds, currently rated 'AA-', with a Stable Outlook by Fitch.
For further information on the State of California's GO bond rating, please see Fitch's press release dated Oct. 5, 2016, 'Fitch Rates California's $1.6B GOs 'AA-'; Outlook Stable', available at www.fitchratings.com. For further information on Atherton Baptist Homes, please see Fitch's press release dated Oct. 11, 2016, 'Fitch Rates Atherton Baptist Homes, CA's 2016 Bonds 'BB'; Upgrades Outstanding', also available at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.
Applicable Criteria
U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)
https://www.fitchratings.com/site/re/879478
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013303
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013303
Endorsement Policy
https://www.fitchratings.com/regulatory
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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.
Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001