NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a short-term rating of 'F1+' and revised the long-term rating to 'AA+' for the $50,000,000 Metropolitan Transportation Authority transportation revenue variable rate bonds subseries 2015E-5.
The Rating Outlook for the long-term rating is Stable.
KEY RATING DRIVERS
The long-term rating is determined using Fitch's dual-party pay criteria and is based jointly on the underlying rating assigned to the bonds by Fitch (currently rated 'A'; Stable Outlook), and the rating assigned by Fitch to U.S. Bank, National Association (rated 'AA-/F1+'; Stable Outlook), which provides the irrevocable direct-pay letter of credit (LOC) supporting the bonds. The short-term 'F1+' rating is based solely on the LOC. For information about the underlying credit rating see Fitch's press release 'Fitch Rates Metro Transportation Auth (NY) Railroad Rehabilitation Infrastructure Financing Loan 'A'' dated May 5, 2015 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 the Bank and the obligor which results in a long-term rating of 'AA+'. If either the underlying bond rating or the bank's 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 respective bank's rating and the underlying bond rating.
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 LOC has a stated expiration date of Sept. 7, 2018, unless extended or earlier terminated, and provides full and sufficient coverage of principal plus an amount equal to 53 days of interest at a maximum rate of 9% based on a year of 365 days and purchase price for tendered bonds, while in the daily and weekly rate modes. The Remarketing Agent is U.S. Bancorp Municipal Securities Group, a division of U.S. Bank National Association and U.S. Bancorp Investment, Inc. The bonds are expected to be delivered on or about Sept. 10, 2015.
The 2015E-5 bonds will initially bear interest at a daily rate. The bonds may be may be converted to a daily, weekly, commercial paper, term, auction or fixed rate. Interest payments are on the first business day of each month, commencing Oct. 1, 2015. The trustee is obligated to make timely draws on the LOC to pay principal, interest, and purchase price. Funds drawn under the LOC are held uninvested, and are free from any lien prior to that of the bondholders.
Holders may tender their bonds on any business day, provided the tender agent is given the requisite prior notice of the purchase. The bonds are subject to mandatory tender: (1) upon conversion of the interest rate; (2) upon expiration, substitution or termination of the LOC; (3) following receipt of written notice from the bank of an event of default under the Letter of Credit and Reimbursement Agreement, and (4) following receipt of notice from the bank that the interest component will not be reinstated directing such mandatory tender. Optional and mandatory redemption provisions also apply to the bonds. There are no provisions for the issuance of additional bonds.
Bond proceeds will be used to refinance certain outstanding indebtedness issued by MTA for transit and commuter projects in addition to finance transit and commuter projects.
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.
Dual-Party Pay Criteria for Long-Term Ratings on LOC-Supported U.S. Public Finance Bonds (pub. 08 Mar 2013)
Rating Guidelines for Letter of Credit-Supported Bonds and Commercial Paper (pub. 21 May 2015)
U.S. Municipal Structured Finance Criteria (pub. 23 Feb 2015)
Dodd-Frank Rating Information Disclosure Form