Fitch Rates CA Enterprise Dev Auth 2016 Taxable VRDBs (J. Harris Industry Wtr Treatment Proj)
Fitch also affirmed the 'AA-/F1+' rating assigned to $5,330,000 California Enterprise Development Authority variable rate demand industrial development revenue bonds (J. Harris Industrial Water Treatment, Inc. Project) series 2015.
The Rating Outlook for both series of bonds is Negative.
KEY RATING DRIVERS
The rating is based on the support provided by an irrevocable direct-pay letter of credit (LOC) issued by City National Bank (rated 'AA-/F1+'/Negative Outlook) which has been amended and restated and now supports both series of bonds. The initial stated expiration dates Sept. 8, 2021, unless such date is extended or earlier terminated while the bonds are in the weekly interest rate mode only.
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 LOC provides full and sufficient coverage of principal plus an amount equal to 45 days of interest at a maximum rate of 10% based on a year of 365 days and purchase price for tendered bonds, while in the weekly rate mode for both the series 2015 and 2016 bonds. The Remarketing Agent for the bonds is Gates Capital Corporation. The Series 2016 bonds are expected to be delivered on or about Sept. 8, 2016.
The 2016 bonds will initially bear interest at a weekly rate and the 2015 bonds will continue to bear interest at the weekly rate, but each series may be converted to a bank interest or fixed interest rate. While the bonds bear interest in the weekly rate mode, interest payments are on the first business day of each month. The scheduled interest payment date is Oct. 3, 2016 for both the series of bonds. 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 trustee and remarketing agent are given the requisite prior notice of the purchase. The bonds are subject to mandatory tender upon conversion of the interest rate and substitution of the LOC. The bonds shall be subject to mandatory redemption following trustee's receipt of notice of an event of default under the reimbursement agreement or non-reinstatement of the LOC interest. The bank has the option of directing a purchase in lieu of redemption rather than a mandatory redemption upon an event of default under the reimbursement agreement. The bonds are subject to mandatory redemption upon expiration of the LOC. Other optional and mandatory redemption provisions also apply to the bonds. Additional bonds may be issued provided they receive a separate series designation and the LOCs are amended to cover the principal and interest of such additional bonds.
The 2016 bond proceeds will be used to refinance the cost of acquisition of real property which, upon the expiration of the current leases, will be used for manufacturing and distribution of various water purification equipment used by companies in the pharmaceutical, biotech, electronica and other industries to generate clean water for use in their production processes.
The rating is exclusively tied to the short and long-term rating that Fitch maintains on the bank providing the substitute LOC and will reflect all changes to that rating.