NEW YORK--(BUSINESS WIRE)--On the effective date of Oct. 8, 2014, Fitch Ratings will take the following rating actions on the San Francisco Finance Corporation's $72,670,000 ($55,010,000 currently outstanding) lease revenue refunding bonds (Moscone Center Expansion Project):
--Long-term rating to be confirmed at 'AA+';
--Short-term rating to be upgraded to 'F1+' from 'F1'.
The Rating Outlook for the long-term rating will be Stable.
The rating actions are in connection with: (i) the substitution of the irrevocable direct-pay letter of credit (LOC) previously provided by Bank of America, N.A. (rated 'A/F1', Negative Outlook) with a substitute LOC to be issued by State Street Bank and Trust Company (State Street, rated 'AA-/F1+', Stable Outlook); and (ii) the mandatory tender of the bonds, which will occur on Oct. 8, 2014.
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 the bonds by Fitch ('AA- ', Stable Outlook), and the rating assigned by Fitch to State Street, which will provide the substitute LOC as support for the bonds. The short-term 'F1+' rating will be based solely on the substitute LOC. For information about the underlying credit rating see press release dated Sept. 23, 2014 and 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 State Street and the obligor which results in a rating of 'AA+' for 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.
Pursuant to the substitute LOC, the bank is 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 ratings will expire upon the earliest of: (a) Oct. 7, 2019, the initial stated expiration date of the substitute LOC, unless such date is extended; (b) conversion to other than the daily or weekly rate modes; (c) any prior termination of the LOC; and (d) defeasance of the bonds. The substitute LOC provides full and sufficient coverage of principal plus an amount equal to 47 days of interest at a maximum rate of 12% based on a year of 365 days and purchase price for tendered bonds. The Remarketing Agent for the bonds is Stifel, Nicolaus & Company, Inc.
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 the bank providing the substitute LOC. Changes to one or both of these ratings may affect the long-term rating assigned to the bonds.
The short-term rating is exclusively tied to the short-term rating that Fitch maintains on the bank providing the substitute LOC and will reflect all changes to that rating.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'U.S. Municipal Structured Finance Criteria', Feb. 24, 2014;
--'Rating Guidelines for Letter of Credit-Supported Bonds and Commercial Paper', June 2, 2014;
--'Dual-Party Pay Criteria for Long-Term Ratings on LOC-Supported U.S. Public Finance Bonds', March 8, 2013.
Applicable Criteria and Related Research:
U.S. Municipal Structured Finance Criteria
Rating Guidelines for Letter of Credit-Supported Bonds and Commercial Paper
Dual-Party Pay Criteria for Long-Term Ratings on LOC-Supported U.S. Public Finance Bonds