Fitch to Revise L-T and Assign S-T Rtgs to MTA (NY) TRBs VRBs Ser 2002G-1g and 2012G-2
--$42,550,000 subseries 2002G-1g 'AA+/F1+';
--$125,000,000 subseries 2012G-2 'AA+/F1+'.
The Rating Outlook is stable for the long-term rating on both subseries of bonds.
The rating actions are in connection with (i) the remarketing of each of the subseries of bonds with the support of two separate irrevocable direct-pay letters of credit (LOCs) issued by TD Bank, N.A. (TD Bank; rated 'AA-/F1+', Stable Outlook) and (ii)the mandatory tender of each subseries of bonds on Nov. 2, 2015.
KEY RATING DRIVERS
The long-term ratings are determined using Fitch's dual-party pay criteria and are based jointly on the underlying rating assigned to those bonds by Fitch (currently rated 'A', Stable Outlook), and the rating assigned by Fitch to TD Bank, N.A. which provides the two LOCs supporting the bonds. The short-term 'F1+' ratings are based solely on the TD Bank, N.A. LOCs. For information about the underlying credit rating see press release 'Fitch Rates Metro Transportation Auth (NY) Railroad Rehabilitation Infrastructure Financing Loan 'A'' dated May 5, 2015 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 the TD Bank and the obligor which results in a long-term rating of 'AA+' for the subseries 2002G-1g and the subseries 2012G-2 bonds. If either the underlying bond rating or TD Bank's 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's rating and the underlying bond rating.
TD Bank is obligated to make regularly scheduled payments of principal of and interest on the bonds in addition to payments upon maturity, and redemption, as well as purchase price for tendered bonds. Each LOC has a stated expiration date of Nov. 1, 2018, unless extended or earlier terminated, and provides full and sufficient coverage of principal plus an amount equal to 53 days of interest at a maximum rate of 9% based on a year of 365 days and purchase price for tendered bonds, while in the daily and weekly rate modes. Goldman, Sachs & Co is the remarketing agent for the subseries 2002G-1g bonds. TD Securities is the remarketing agent for the 2012G-1 bonds.
The subseries 2002G-1g and subseries 2012G-2 bonds initially bear interest at a weekly rate. Each subseries may be converted to a daily, weekly, commercial paper, term or fixed rate. Interest payments are on the first business day of each month for each subseries, commencing Dec. 1, 2015. The trustee is obligated to make timely draws on the respective LOC to pay principal, interest, and purchase price. Funds drawn under the LOCs 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 tender agent is given the requisite prior notice of the purchase. The bonds are subject to mandatory tender: (1) upon conversion of the interest rate; (2) upon expiration, substitution or termination of the respective LOC; (3) following receipt of written notice from the bank of an event of default under the respective Letter of Credit and Reimbursement Agreement, and (4) following receipt of notice from the bank that the interest component will not be reinstated directing such mandatory tender. Optional and mandatory redemption provisions also apply to the bonds. There are no provisions for the issuance of additional bonds.
As described above, the long-term ratings are tied to the long-term ratings assigned to the bonds and the long-term ratings that Fitch maintains on the banks providing the related LOCs. Changes to one or both of these ratings may affect the long-term ratings assigned to the subseries of bonds.
The short-term ratings are exclusively tied to the short-term ratings that Fitch maintains on the banks providing the related LOCs and will reflect all changes to those ratings.