NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a rating of 'AAApre' to portions of the following maturities of $1,497,040,000 State of California (the state) various purpose general obligation (GO) bonds (the refunded bonds):
--Bonds dated April 1, 2007 and maturing Aug. 1, 2017, 2018, and 2021-2025;
--Bonds dated June 1, 2007 and maturing June 1, 2022-2027;
--Bonds dated Nov. 1, 2007 and maturing Nov. 1, 2022, 2023, 2025, 2032 and 2037; and
--Bonds dated Dec 1, 2007 and maturing Dec. 1, 2018, 2022, 2023, 2028, 2029, 2031, 2032 and 2037.
The Rating Outlook is Stable. The rating applies only to the bonds listed by CUSIP below.
KEY RATING DRIVERS:
The 'AAApre'/Outlook Stable 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 'AAA'/Outlook Stable by Fitch.
Fitch also maintains an unenhanced rating of 'AA-'/Outlook Stable on the bonds based on the GO pledge of the state's full faith and credit ( 'AA-'/Outlook Stable). 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's GO rating, see 'Fitch Rates California $1.56 GOs 'AA-'; Outlook Stable' (Oct. 5, 2016) at 'www.fitchratings.com'.
The bonds were refunded on Sept. 13, 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 will be redeemed at par plus accrued interest, as follows: refunded bonds dated April 1, 2007 on Feb. 1, 2017; refunded bonds dated June 1, 2007 on June 1, 2017; refunded bonds dated Nov. 1, 2007 on Nov. 1, 2017; and refunded bonds dated Dec. 1, 2007 on Dec. 1, 2017.
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.
A firm of certified public accountants 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 J.P. Morgan Securities LLC, underwriter for the refunding bonds. According to the verification report, cash available from 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'/Outlook Stable rating applies to 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
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