Fitch Rates NYC TFA Fiscal 2016 Series E, Subseries E-4 'AAA/F1 '
The Rating Outlook is Stable for the long-term rating on the bonds.
KEY RATING DRIVERS
The long-term 'AAA' is based on the strong legal framework, low risk of tax rate reduction, statutory cash flow provisions, robust coverage with strong protections against overleveraging, and solid economic underpinnings.
For more information on TFA's long-term credit rating, see 'Fitch Rates NYC Transitional Finance Auth's \\$1B Future Tax Sec'd Sub Bonds 'AAA'; Outlook Stable' dated Feb. 4, 2016, available on Fitch's website.
The short-term 'F1+' rating is based on the liquidity support provided by JPMorgan Chase Bank, National Association (rated 'AA-/F1+', Outlook Stable) in the form of a Standby Bond Purchase Agreement (SBPA). The SBPA has a stated expiration date of Feb. 26, 2019, unless extended or earlier terminated, during the daily, weekly or two-day modes interest rate mode only.
The SBPA provides for the payment of the principal component of purchase price plus an amount equal to 35 days of interest calculated at a maximum rate of 9%, based on a year of 365 days for tendered bonds during the daily, two-day, and weekly rate modes in the event that the proceeds of a remarketing of the bonds are insufficient to pay the purchase price following an optional or mandatory tender. The SBPA will expire on Feb. 26, 2019, the stated expiration date, unless such date is extended; upon conversion to a mode other than daily, two-day or weekly rate; or upon the occurrence of certain events of default which result in a mandatory tender or other events of default related to the credit of the bond obligor which result in an automatic and immediate termination. The remarketing agent is JP Morgan Securities LLC. The bonds are expected to be delivered on or about Feb. 26, 2016.
The bonds will be issued in the daily rate mode, but may be converted to a weekly, two-day, commercial paper, indexed, term, auction, stepped coupon or fixed rate. While bonds bear interest in the daily, weekly or two-day rate mode, interest is paid on the first business day of each month, commencing March 1, 2016. Holders of bonds bearing interest in the daily, two-day or weekly rate mode may tender their bonds for purchase with the requisite prior notice. The tender agent is obligated to make timely draws on the SBPA to pay purchase price in the event of insufficient remarketing proceeds, and in connection with the expiration or termination of the SBPA, except in the case of the credit-related events permitting immediate termination or suspension of the SBPA.
Funds drawn under the SBPA are held uninvested, and are free from any lien prior to that of the bondholders. The bonds are subject to mandatory tender: (1) on each conversion date; but a conversion of all the of the bonds between daily, two-day and weekly rate shall not cause a mandatory tender; (2) upon expiration, substitution unless rating confirmation is received from Fitch, or termination of the SBPA; and (3) following the receipt of written notice from the bank of an event of default under the SBPA, directing such mandatory tender. Optional and mandatory redemption provisions also apply to the bonds.
Bond proceeds will be used to finance capital projects for the city.
RATING SENSITIVITIES
REVENUE DECLINES: While TFA revenues are vulnerable to downside risk, Fitch believes the bonds are well protected from a potential long-term rating downgrade by both legal provisions (3x ABT) and practical considerations. The city relies heavily on residual pledged revenues, whose growth reflects the city's continuing solid economic underpinnings, for its operating budget.
The short-term rating reflects the short-term rating that Fitch maintains on the bank providing liquidity support and will be adjusted upward or downward in conjunction with the short-term rating of the bank and, in some cases, the long-term rating of the bond obligor.
Date of Relevant Rating Committee (long-term rating): Sept. 29, 2014.
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