NEW YORK--(BUSINESS WIRE)--On the effective date of Dec. 3 2014, Fitch Ratings will (i) revise the long-term rating to 'AA' from 'A+' and (ii) confirm the short-term 'F1' rating assigned to the $130,000,000 The County of Cook, Illinois taxable general obligation variable rate bonds, series 2004D. The Rating Outlook is Negative for the long-term rating. The rating action is in connection with: (i) the substitution of the Standby Bond Purchase Agreement (SBPA) previously provided by Barclays Bank plc (Barclays, rated 'A/F1', Stable Outlook) with an irrevocable direct-pay letter of credit (LOC) also to be provided by Barclays; and (ii) the mandatory tender of the bonds, which will occur on Dec. 3, 2014.
KEY RATING DRIVERS:
On the effective date, the long-term rating will be determined using Fitch's dual-party pay criteria and will be based jointly on the underlying rating assigned to the bonds by Fitch (currently rated 'A+', Negative Outlook) and the rating assigned by Fitch to Barclays, which will provide the LOC as support for the bonds. The short-term 'F1' rating will be based solely on the LOC. For information about the underlying credit rating see the press release dated July 11, 2014 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 Barclays 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 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 and redemption, as well as purchase price for tendered bonds. The ratings will expire upon the earliest of: (a) Dec. 1, 2017, the initial stated expiration date of the LOC, unless such date is extended; (b) conversion to an interest rate mode other than the weekly rate; (c) any prior termination of the LOC; and (d) defeasance of the bonds. The LOC provides full and sufficient coverage of principal plus an amount equal to 51 days of interest at a maximum rate of 10% based on a year of 365 days and purchase price for tendered bonds, while in the weekly rate mode. A mandatory tender of the bonds will occur on the substitution date on Dec. 3, 2014. The Remarketing Agent for the bonds is Barclays Capital 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 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 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', February 24, 2014;
--'Rating Guidelines for Letter of Credit-Supported Bonds and Commercial Paper', June 4, 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:
Dual-Party Pay Criteria for Long-Term Ratings on LOC-Supported U.S. Public Finance Bonds
Rating Guidelines for Letter of Credit-Supported Bonds and Commercial Paper
U.S. Municipal Structured Finance Criteria