OREANDA-NEWS. Fitch Ratings has updated its sector-specific criteria report for rating prerefunded U. S. municipal bonds. The updated report replaces the existing criteria published on Dec. 9, 2014. No changes to the ratings of existing transactions are anticipated as a result of the application of the updated rating criteria.

Fitch has identified three key rating drivers that affect the credit quality of prerefunded municipal credits:

--Quality and Sufficiency of Investments: Bonds qualifying for prerefunded ratings are secured with cash and investments that are, in Fitch's judgment, of the highest credit quality and the least likely to default. Verification reports prepared by independent certified public accountants (CPAs) experienced in municipal bond refundings are reviewed for confirmation that the projected cash flows will be sufficient to meet all payments of principal, interest and any premium on the prerefunded bonds.

--Escrow Irrevocability: Escrow deposits and the agreements between the bond issuer and the financial institution serving as escrow agent are expected to be irrevocable.

--Role of Legal Opinions: Fitch seeks an enforceability opinion from bond counsel stating that the escrow agreement is a legally binding, valid and enforceable obligation of the issuer. Under certain circumstances, additional legal opinions may be requested to determine that holders of prerefunded bonds are not exposed to credit risks of the bond issuer or borrower of the bond proceeds if either becomes the subject of a petition under the U. S. Bankruptcy Code.

The updated criteria report outlines how Fitch evaluates these risk factors in its rating analysis of prerefunded U. S. municipal bonds.