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

Municipal Applications For Joint Support CriteriaDefault correlations of 25%, 20%, or 15% areexplicitly assumed based on the obligors’ characteristics,as shown in Table 2.Three different reference tables (tables 3, 4, and5) for different degrees of correlation are employed.To facilitate implementation, relatively simpleguidelines are used to determine which table isappropriate. The main factors are whether theobligors are in the same industry, in the sameregion, or speculative grade. The relevance of theseintuitive criteria is supported by Standard & Poor’sdefault correlation research. Most eligible jointlysupported issues are expected to fall in the mediumor low correlation categories.In the U.S., a region will generally be defined as astate. Outside the U.S., a region will generally bedefined as a country. However, we will also makecase-specific analytical conclusions about correlationwhen appropriate. To date, joint-support criteriahave typically been applied to transactionsinvolving a bank and either a U.S. corporate or aU.S. public finance entity. When assessing geographiccorrelation, a large bank, with a globallydiverse business profile, will not be treated as inany particular U.S. state. In other words, a majorbank with its home office in New York would notbe considered in the same region as a New YorkState municipality. Conversely, smaller banks withsignificant geographic concentrations in one tothree states may be considered to be in the sameregion as entities from any of those states.Entities To Which The Criteria Are ApplicableThe main application of the joint-support criteria todate has been for LOC-backed issues. Banks providingthe LOCs range from local U.S. commercialbanks to large multinational institutions based in anumber of countries. Virtually all transactions towhich the criteria are applied include at least onefinancial institution obligor.Under the criteria, Standard & Poor’s excludesvery highly correlated entities—such as affiliatedcompanies—from any joint-support benefit.Obligations insured by the monoline bond insurerswill remain ineligible for joint-support creditenhancement (above the rating on the insurer),reflecting the significant correlation between theinsurer and its portfolio of insured obligations. Thejoint-support approach remains inappropriate forU.S. public finance double-barreled bonds, whichare backed by economically codependent paymentTable 3 High Correlation Reference Table (continued)BB+ BB BB- B+ B B- CCC+ CCC CCC- DAAA AAA AAA AAA AAA AAA AAA AAA AAA AAA AAAAA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+ AA+AA AA AA AA AA AA AA AA AA AA AAAA- AA- AA- AA- AA- AA- AA- AA- AA- AA- AA-A+ AA- A+ A+ A+ A+ A+ A+ A+ A+ A+A A+ A+ A A A A A A A AA- A A A- A- A- A- A- A- A- A-BBB+ A- A- A- BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ BBB+BBB A- BBB+ BBB+ BBB+ BBB BBB BBB BBB BBB BBBBBB- BBB+ BBB BBB BBB BBB BBB- BBB- BBB- BBB- BBB-BB+ BBB+ BBB BBB BBB BBB- BBB- BBB- BB+ BB+ BB+BB BBB BBB BBB- BBB- BBB- BB+ BB BB BB BBBB- BBB BBB- BBB- BB+ BB+ BB BB BB- BB- BB-B+ BBB BBB- BB+ BB+ BB BB BB- B+ B+ B+B BBB- BBB- BB+ BB BB BB- B+ B+ B BB- BBB- BB+ BB BB BB- B+ B B B- B-CCC+ BB+ BB BB BB- B+ B B- B- CCC+ CCC+CCC BB+ BB BB- B+ B+ B B- CCC+ CCC+ CCC-CCC- BB+ BB BB- B+ C B- CCC+ CCC+ CCC CCC-D BB+ BB BB- B+ B B- CCC+ CCC CCC- Dwww.standardandpoors.com219