NEW YORK--(BUSINESS WIRE)--On the effective date of April 30, 2013, Fitch Ratings will confirm the long-term rating at 'AA+', Stable Outlook and confirm the short-term rating at 'F1+' on the $100,000,000 San Francisco International Airport, second series variable rate revenue refunding bonds, issue 36A (the bonds). The rating actions are in connection with the substitution of the irrevocable direct-pay letter of credit (LOC) previously provided by Wells Fargo Bank, National Association (rated 'AA-/F1+', Stable Outlook) with a substitute LOC to be issued by U.S. Bank, National Association, (U.S. Bank; rated 'AA-/F1+', Stable Outlook).
KEY RATING DRIVERS:
The 'AA+', Stable Outlook 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 support provided by the substitute LOC. The short-term 'F1+' rating will be based solely on the substitute LOC. For information about the underlying rating see the press release dated Nov. 8, 2012 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, National Association 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 U.S. Bank 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) Oct. 28, 2016, the initial stated expiration date of the substitute LOC, unless such date is extended; (b) conversion of the bonds to an interest rate mode other than a weekly rate; (c) any prior termination of the substitute LOC; and (d) defeasance of the bonds.
The substitute U.S. Bank LOC provides full and sufficient coverage of principal plus an amount equal to 50 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 weekly rate mode. A mandatory tender of the bonds will occur on the substitution date, April 30, 2013. Merrill Lynch, Pierce, Fenner & Smith Incorporated, remains as remarketing agent for the subseries 2008 B-2 bonds.
RATING SENSITIVITIES:
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 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 the rating.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'U.S. Municipal Structured Finance Criteria', Feb. 27, 2013;
--'Rating Guidelines for Letter of Credit-Supported Bonds', June 20, 2012,
--'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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=701570
Rating Guidelines for Letter of Credit-Supported Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681737
Dual-Party Pay Criteria for Long-Term Ratings on LOC-Supported U.S. Public Finance Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=701572
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