NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded the short-term rating assigned to the City of Houston, Texas combined utility system commercial paper notes, $100,000,000 series B-6 to 'F1' from 'F1+', and affirmed the 'F1+' rating assigned to $100,000,000 series B-4. The rating actions are in connection with the substitution of the current Revolving Credit Agreement (RCA) provided by U.S. Bank, NA ('AA/F1+'/Stable Outlook) with a RCA to be provided by Bank of America, NA ('A+/F1'/Stable Outlook) for series B-6, and the substitution of the current letter of credit (LOC) provided by State Street Bank and Trust Company ('AA/F1+'/Stable Outlook) with a RCA to be provided by State Street for series B-4.
KEY RATING DRIVERS
The rating on the series B-6 notes has been downgraded to 'F1' based on the liquidity support provided in the form of a RCA provided by Bank of America, which has a stated expiration date of July 12, 2019, unless extended or earlier terminated. The rating on the series B-4 notes is affirmed at 'F1+' based on the liquidity support provided in the form of a RCA provided by State Street Bank and Trust Company ('AA/F1+'/Stable Outlook), which has a stated expiration date of July 12, 2019, unless extended or earlier terminated. The substitute RCAs provide coverage for the principal amount of the notes plus 270 days of interest calculated at 10% based on a 365 day year. The rating assigned to the first lien obligations of the City of Houston Combined Utility System is 'AA'/Stable Outlook.
U.S. Bank, National Association will continue as the Issuing and Paying Agent (IPA) for the notes, and as IPA, is directed to request an advance under the substitute RCAs whenever proceeds of the sale of rollover notes are insufficient to pay maturing notes. The substitute RCAs provide sufficient coverage for the principal amount of notes and accrued interest on the notes.
All notes will be issued at par, with interest due at maturity. Following the occurrence of an event of default under a RCA, the bank may direct the IPA to immediately stop the issuance of any additional notes. In such event, the substitute RCA will expire after all the notes supported by such RCA mature and have been paid from funds drawn on the substitute RCA. In addition, the substitute RCA may be terminated by the bank upon the occurrence of specified immediate termination events. The dealers for the notes are Barclays Capital, Citigroup, Ramirez & Co., Inc., Rice Financial Products, and J.P. Morgan Securities, Inc.
The rating reflects the short-term rating that Fitch maintains on the substitute bank providing liquidity support and will be adjusted upward or downward in conjunction with changes to the short-term rating of the bank and in some cases, the long-term rating of the issuer.
Additional information is available at www.fitchratings.com.
Rating Criteria for Letter of Credit-Supported Bonds and Commercial Paper (pub. 05 Apr 2016)
U.S. Municipal Structured Finance Criteria (pub. 23 Feb 2015)
Dodd-Frank Rating Information Disclosure Form