Fitch Revises Rating on Providence St. Joseph Health Obligated Group, VRBs Ser 2016G to 'AA+'
KEY RATING DRIVERS
The Long-Term Rating is 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 Bank of Tokyo Mitsubishi UFJ, Ltd ('MUFG' rated 'A'/'F1'/Negative Outlook), which provides the irrevocable direct-pay letter of credit (LOC) supporting the bonds. The Short-Term 'F1' Rating is based solely on the LOC. For information about the underlying credit rating see press release dated Sept. 12, 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 interest rate modes to be covered by Fitch's rating provide for either a mandatory purchase at the end of each interest rate period, or a purchase demand option. A one or two notch uplift will apply to the long term rating depending on the frequency of the purchase demand option or the duration of the interest rate period which concludes with a mandatory tender.
The bonds provide holders with a tender option upon same day notice during daily rate and seven day notice during the weekly rate and a mandatory tender at the end of the daily or weekly interest rate period (other than conversion between daily or weekly). Fitch will apply a two notch uplift which results in a long-term 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.
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 has a stated expiration date of Sept. 28, 2022, unless extended or earlier terminated, and provides full and sufficient coverage of principal plus an amount equal to 47 days of interest at a maximum rate of 12% based on a year of 360 days and purchase price for tendered bonds, while in the daily and weekly rate mode. The Remarketing Agent for the bonds is Citigroup Global Markets, Inc. The bonds are expected to be delivered on or about Sept. 28, 2016.
The bonds initially bear interest at a weekly rate, but may be converted to a daily, flexible, FRN, indexed, term or fixed rate. While bonds bear interest in the weekly or daily rate modes, interest payments are on the first business day of each month, commencing Nov. 1, 2016. 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 may be remarketed at a discount and in such case the proceeds will be derived solely from remarketing proceeds and Available Moneys. The bonds are subject to mandatory tender: (1) upon conversion of the interest rate (other than between daily and weekly);(2) upon expiration, substitution or termination of the LOC; (3) following receipt of written notice from the bank of an event of default under the reimbursement agreement, and (4) following receipt of notice from the bank that the interest component will not be reinstated directing such mandatory tender. The bank has the option of directing an acceleration rather than a mandatory tender upon an event of default under the reimbursement agreement or non-reinstatement of LOC interest. Optional and mandatory redemption provisions also apply to the bonds. Additional bonds may be issued under a supplemental indenture provided they receive a separate series designation and trustee is prohibited from drawing on the LOC to make payment on the additional bonds, or the LOC is amended to cover the additional bonds consolidated with the Series 2016G bonds. The issuance of additional bonds required rating confirmation.
Bond proceeds will be used to refinance prior debt of Providence Health & Services.
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 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 LOC and will reflect all changes to that rating.