NEW YORK--(BUSINESS WIRE)--On the effective date of May 21, 2015, Fitch Ratings will upgrade to 'AA+/F1+', Stable Outlook, from 'AA/F1', Positive Outlook, the ratings assigned to the Oregon Health and Science University variable rate revenue bonds, series 2012B-3 (the bonds).
The rating action is in connection with the (i) substitution of the irrevocable direct-pay letter of credit (LOC) previously provided by MUFG Union Bank, National Association (rated 'A+/F1', stable outlook) with a substitute LOC to be issued by U.S. Bank, National Association (rated 'AA-/F1+', Stable Outlook, and (ii) the mandatory tender of the bonds, which will occur on May 21, 2015.
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 'A+', Positive Outlook), and the rating assigned by Fitch to the U.S. Bank, N.A. (rated 'AA-', Stable Outlook), 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 Feb. 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 U.S. Bank, NA 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 and redemption, as well as purchase price for tendered bonds. The ratings will expire upon the earliest of: (a) May 21, 2020, the initial stated expiration date of the substitute LOC, unless such date is extended; (b) conversion to a rate mode other than the daily or weekly rate; (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 52 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. A mandatory tender of the bonds will on the substitution date on May 21, 2015. The Remarketing Agent for the bonds will be U.S. Bank, National Association.
As described above, the long-term rating is tied to the long-term rating assigned to the bond obligor 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. 23, 2015;
--'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