Fitch Rates $135MM San Antonio, Texas' HOT VRDBs, Series 2008 'AA+/F1+'
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NEW YORK--(BUSINESS WIRE)--
Fitch Ratings assigns a rating of 'AA+/F1+' to the $135,000,000 City of San Antonio, Texas, hotel occupancy tax (HOT) variable-rate demand subordinate lien revenue and refunding bonds, series 2008 (the bonds). The rating is based on the rating of a direct-pay letter of credit (LOC) supporting the bonds and the application of Fitch's joint probability methodology. The long-term 'AA+' rating on the bonds is based jointly on the underlying rating assigned to San Antonio's HOT subordinate lien bonds, rated 'A' by Fitch, and the support provided by an irrevocable direct-pay LOC issued by Wachovia Bank, N.A. (the bank) securing the bonds. The short-term 'F1+' rating is based solely on the LOC. Both the bank's long-term and short-term ratings are on Rating Watch Negative. For more information on the underlying credit please refer to the July 1 press release ('Fitch Rates San Antonio, Texas' HOT Sub Lien Bonds 'A'') available on the Fitch Ratings web site at www.fitchratings.com.
The long-term 'AA+' rating is based on Fitch's methodology, which considers the joint probability of the failure of both a rated obligation and a bank LOC provider. The methodology results in a rating that is up to two notches higher than the stronger of the two credits if the following conditions are met: both entities have a rating of 'A' or higher; 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 the credit of the bank and the rated obligation have no more than a medium degree of correlation; Fitch has determined, in this instance, that there is a low degree of correlation which results in a rating of 'AA+'. If either the underlying rating on the bonds or the rating of the bank were downgraded to 'A-' or lower, the joint probability could no longer be applied and the long-term rating would then reflect the higher of the two ratings.
The bank is obligated to make payments of principal and interest when due, as well as the purchase price for tendered bonds. The rating will expire upon the earliest of: July 11, 2010, the stated expiration date of the LOC, unless such date is extended; any prior termination of the LOC; and defeasance of the bonds. The LOC provides full coverage of principal plus an amount equal to 45 days' interest at a maximum rate of 10%, based on a 365-day year and the purchase price for tendered bonds. The remarketing agent for the bonds is Wachovia Bank, N.A. The bonds are expected to be delivered on or about July 11, 2008.
The bonds initially bear interest at the weekly rate, but may be converted to a daily, auction, commercial paper, term, and fixed interest rate. While bonds bear interest in the weekly mode, interest payments are due on the first business day of each month, commencing Aug. 1, 2008. During the weekly mode, bondholders may tender their bonds on any business day, with seven days' prior notice of the purchase. The bonds are subject to mandatory tender upon interest mode changes, rate adjustment, and upon substitution or termination of the LOC. Mandatory and optional redemption provisions also apply to the bonds.
The bond proceeds will be used by San Antonio (i) to refund its outstanding Hotel Occupancy Tax Subordinate Lien Revenue and Refunding Bonds, Series 2004B; and (ii) for renovations to the Lila Cocknell Theatre, including Americans with Disabilities Act compliance improvements, asbestos abatement, renovation of all interior finishes and mechanical, electrical, and plumbing upgrades, as well as other expansion related improvements.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Source: Fitch Ratings
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