S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Introduction To Structured FinanceCriteria Outline for Bank-Supported Municipal Debt (continued)IV. Bank facility drawing instructionsA. Credit facility draws must be consistent with bank document timingB. Liquidity facility draws1. Timing consistent with bank document2. Amount drawn is according to remarketing proceeds on deposit, if anyV. Bank document termination eventsA. Timed termination1. Termination countdown begins only after actual receipt of notice of bank notice by trustee or other party2. Bondholder takeout honored by bank must occur following receipt of bank termination noticeVI.Reimbursement provisionsA. Credit advancesB. Liquidity advancesVII. MiscellaneousA. Investment instructions for unused remarketing and bank facility proceeds must be adequate to support ratingB. Trustee or other specified drawing party may not resign or be removed until appointment of a successorC. Drawing party may not require indemnity to draw under bank facilityD. Custodian instructions to release bank bonds only after written notice of liquidity facility reinstatement from bankE. Notices to Standard & Poor’s1. Fixed rate conversion2. Redemptions3. Bank facility expiration, termination, extension, or substitution4. Changes to legal documents5. Defeasance6. Accelerationbonds. To affirm their intent to retain the bonds,bondholders should acknowledge in writing theirunderstanding of the rating consequences prior tothe event occurring.Timeliness of LOC draws.It is necessary to synchronize the trustee’s drawinstructions under the bond indenture with the paymentterms of the LOC to ensure that the LOC isdrawn upon in accordance with its terms to providefor full and timely payment of principal, interest,purchase price, and premium, if any.LOC SizingAn LOC must be for a specific amount with a definiteexpiration date. Other limitations reviewedwithin an LOC include its terms for draws, itsterms for reinstatement, and its turnaround timesfor the bank to honor an LOC draw. These termsare reviewed in conjunction with the structure ofthe bond documents to conclude that the LOCoffers full and timely coverage for the transaction.The factors used to calculate the required amountof LOC coverage are the following:■ Principal: the principal portion must equal thecurrent outstanding amount of bonds.■ Premium: the amount corresponding to thelargest premium applicable to a mandatoryredemption or tender.■ Interest: the interest portion shall be an amountequal to the maximum number of days of interestthat could accrue calculated at either the actualrate for fixed-rate bonds or the maximum ratefor floating-rate bonds.For purposes of calculating the interest coverageof the LOC, the appropriate length of the calendaryear, 360 or 365/6 days, must correspond with thebasis of calculation within the bond documents.The LOC provider should always agree to pay withimmediately available funds. It is critical that theLOC covers the maximum amount of interest thatcan accrue in the worst-case scenario.For direct-pay and prioritized direct-pay transactions,the following worst-case scenario wouldapply. In this instance, the trustee draws on theLOC for full coverage of the longest interest period.Following the draw, the LOC bank sends notice ofwww.standardandpoors.com211