NEW YORK--(BUSINESS WIRE)--On the effective date of March 23, 2016, Fitch Ratings will affirm the 'AAA' long-term rating and downgrade the short-term rating to 'F1' from 'F1+' assigned to the Metropolitan Transportation Authority's dedicated tax fund variable rate bonds subseries 2002B-1. The Rating Outlook is Stable for the long-term rating.
The rating action is in connection with the substitution of the irrevocable direct-pay letter of credit (LOC) previously provided by State Street Bank and Trust Company, (rated 'AA/F1+', stable outlook) with a substitute LOC to be issued by The Bank of Tokyo-Mitsubishi UFJ, Ltd (BTMU, rated 'A/F1' Stable Outlook).
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 'AA', stable outlook), and the rating assigned by Fitch to the BTMU, 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 MTA DTF credit rating see press release dated Feb. 22, 2016 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 BTMU and the obligor which results in a rating of 'AAA' 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 and interest on the bonds in addition to payments due upon maturity and redemption, as well as purchase price for tendered bonds. The substitute LOC has a stated expiration date of March 22, 2021, 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 weekly rate mode. A mandatory tender of the bonds will occur on the substitution date on March 23, 2016. The Remarketing Agent for the bonds is Mitsubishi UFJ Securities (USA), Inc.
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'.