OREANDA-NEWS. Fitch Ratings has downgraded the long- and short-term ratings assigned to the State of California variable rate general obligation (Kindergarten-University Public Education Facilities Bonds) series 2003B-1, 2003B-2, 2003B-3 and 2003B-4 to 'A+/F1' from 'AA-/F1+'.
The Rating Outlook is Stable for the long-term rating.

The rating action is in connection with: (i) the substitution of the severally obligated irrevocable direct-pay letter of credit (LOC) previously provided by J.P. Morgan Chase Bank, National Association (rated 'AA-/F1+', Stable Outlook) and CalPERs(rated 'AAA/F1+', Stable Outlook) with a substitute LOC to be issued by Bank of America, N.A. (rated 'A+/F1', Stable Outlook). The bonds will be subject to mandatory tender on April 27, 2016.

KEY RATING DRIVERS:
The long-term 'A+' rating is based on the higher of the underlying long-term rating assigned to the bonds by Fitch (currently rated 'A+', Stable Outlook), and the long-term rating assigned by Fitch to Bank of America, N.A. (rated 'A+', Stable Outlook), the bank providing the irrevocable direct-pay letter of credit LOC securing the bonds, which has a stated expiration date of April 26, 2019, unless extended or earlier terminated, during the weekly interest rate mode only. The short-term 'F1' rating will be based solely on the LOC. For information about the underlying credit rating see press release 'State of California General Obligation Bonds', dated Oct. 7, 2015 and available at 'www.fitchratings.com'

Pursuant to the substitute LOC, the bank is obligated to make regularly scheduled payments of principal of and interest on the bonds in addition to payments due upon maturity, and redemption, as well as purchase price for tendered bonds. Additionally, the bond obligor is in the flow of funds to make timely payments of principal and interest due upon maturity, acceleration and redemption.

The Bank of America, N.A. substitute LOC provides full and sufficient coverage of principal plus an amount equal to 35 days of interest at a maximum rate of 11% based on a year of 365 days and purchase price for tendered bonds, while in the weekly rate mode.

The Remarketing Agents for the bonds is J.P. Morgan Securities LLC for the Series 2003B-1, Merrill Lynch, Pierce, Fenner & Smith Incorporated for the Series 2003B-2, Morgan Stanley & Co. LLC for the Series 2003B-3 and Stifel, Nicolaus & Company, Incorporated for Series 2003B-4.

RATING SENSITIVITIES
As described above, the long-term rating is tied to the long-term rating assigned to the bond obligor and the long-term rating that Fitch maintains on the bank providing the substitute 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 substitute LOC and will reflect all changes to that rating.