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

Bank Liquidity Facilitiesthat immediately suspend the SBPA provider’s obligationto purchase are viewed the same as immediatetermination events.As a result of the limited number of terminationor suspension events, the SBPA provider’s shorttermissuer credit rating becomes the short-termrating on the bond issue. Note that Standard &Poor’s will apply the same restrictions to the conditionsprecedent to purchase section of the SBPA, asthat section can have the same effect on the provider’spayment obligation. If two or more SBPA providerscombine to severally support a bond issue, theshort-term rating will reflect the lowest short-termissuer credit rating of any of them.Unless additional self-liquidity is provided andevaluated, a liquidity rating based on an SBPAcannot be higher than the equivalent long-termbond rating of the issue (see chart, “Correlation OfCP Ratings With Long-Term Ratings”), since thebank’s obligation to fund the purchase price fortendered bonds is conditioned on the obligor orinsurer’s ability to meet its debt obligations. Theliquidity rating of the issue will be based on thelower of the short-term rating assigned to the bankor the short-term rating correlating to the long-termrating of the bond issue. Therefore, the likelihoodof the bank terminating its obligation to purchaseCorrelation Of CP Ratings WithLong-Term Credit Ratings*AAAAA+AAA+AA-BBB+BBBAA-BBB-*Dotted lines indicate combinations that are highly unusual.A-1+A-1A-2A-3the tendered bonds is correlated to the long-termrating of the bond issue.The SBPA(s) must provide principal coverage ofthe full par amount of the issue, and interest coveragefor the longest interest accrual period for themodes that the SBPA is covering. Interest coverageshould be calculated at the maximum rate permittedon the bonds. The interest accrual periodextends from the day any interest mode becomeseffective or from the last interest payment date toand including the day before a regularly scheduledinterest payment date. If a mandatory tender canoccur on a day other than a regularly scheduledinterest payment date, additional coverage may beneeded. The SBPA agreement should specify thatthe provider would pay with immediately availablefunds. In addition, as with the LOC criteria, theSBPA provider must specifically state that they willpay with their own funds.Permitted Automatic Termination EventsUninsured liquidity facilitiesStandard & Poor’s allows the following events toresult in a termination or suspension without noticeof an SBPA providing liquidity enhancement touninsured bonds:1. Failure to pay principal of or interest on thebonds being rated (including bank bonds).2. Failure to make payment on any debt onparity with, or senior to, the bonds being rated(including bank bonds).3. The issuer or obligor challenges the validity orenforceability of the bond documents or liquiditydocuments, or any court or governmentalauthority having jurisdiction over the transactionfinds or rules that the bond documents or liquiditydocuments or any material provision thereofrelating to the payment of principal and intereston the bonds being rated (including bank bonds),are not valid and binding. This includes, in certaincases, a similar determination by the obligor,court, or governmental authority that the definedpledged security for the bonds, as stated in thebond documents, is no longer valid or enforceable.4. The obligor begins proceedings relating to bankruptcy,insolvency, reorganization, or relief fromdebtors, or admits its inability to pay its debts inwriting, or the occurrence of an involuntarybankruptcy event.5. Standard & Poor’s reduces the bond rating tobelow investment grade (below ‘BBB-’), or therating is suspended or withdrawn for creditrelatedreasons.6. The IRS declares the bonds taxable.www.standardandpoors.com27