Fitch to Take Various Rating Actions on Mass Housing Finance Agency Housing Bonds 2009 Ser A and B
On the effective date of Feb. 1, 2013, Fitch Ratings will confirm the 'AA+' long-term rating and upgrade to 'F1+' from 'F1' the short-term rating assigned to the$27,238,000 Massachusetts Housing Finance Agency Bonds consisting of $14,830,000 Housing Bonds, 2009 Series A and $12,408,000 Housing Bonds, 2009 Series B (Federally Taxable) (the bonds). The rating actions are in connection with (i) the substitution of the two irrevocable direct-pay letter of credit (LOCs) currently provided by Bank of America, N.A. (rated 'A/F1', Stable Outlook) with two substitute LOCs to be issued by The Bank of New York Mellon (BNY, rated 'AA-/F1+', Stable Outlook) and (ii) a mandatory tender of the bonds which will take place on January 25, 2013 five business days prior to the Feb. 1, 2013 effective date of the substitution.
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 the bonds by Fitch (currently rated 'AA-', Stable Outlook) , and the support provided by the substitute LOCs. The short-term 'F1+' ratings will be based solely on the support of the two substitute LOCs. For information about the underlying credit rating see press release dated Nov. 13, 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 BNY and the obligor which results in a rating of 'AA+', Stable Outlook 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 LOCs, the bank is obligated to make regularly scheduled payments of principal of and interest on the bonds in addition to payments due upon maturity, acceleration and redemption, as well as purchase price for tendered bonds. The ratings will expire upon the earliest of: (a) Feb. 1, 2016, the initial stated expiration date of each of the substitute LOCs, unless such date is extended; (b) conversion to a mode other than the weekly rate; (c) any prior termination of the respective substitute LOC; and (d) defeasance of the bonds. The substitute LOC for 2009 Series A provides full and sufficient coverage of principal plus an amount equal to 55 days of interest at a maximum rate of 12 % based on a year of 365 days. The substitute LOC for 2009 Series B provides full and sufficient coverage of principal plus an amount equal to 55 days of interest at a maximum rate of 15% based on a year of 365 days. Each substitute LOC also provides for the purchase price for tendered bonds while in the weekly rate mode. The Remarketing Agent for the bonds is Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'U.S. Municipal Structured Finance Criteria', February 28, 2012;
--'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 9, 2012.
Applicable Criteria and Related Research:
U.S. Municipal Structured Finance Criteria
Rating Guidelines for Letter of Credit-Supported Bonds
Dual-Party Pay Criteria for Long-Term Ratings on LOC-Supported U.S. Public Finance Bonds
One State Street Plaza
New York, NY 10004