Fitch Ratings has assigned a rating of 'AAApre', Stable Outlook to the outstanding $321,445,000 State of California (state) general obligation (GO) bonds, refunded on March 27, 2014 with proceeds of the state's various purpose general obligation refunding bonds.
KEY RATING DRIVERS:
The 'AAApre', Stable Outlook rating is based on the pledge of securities in the escrow deposit fund securing the bonds and reflects the lien of the refunded bondholders on the escrow trust funds and that all amounts have been invested in direct non-callable obligations of the United States. The U.S. full faith and credit is currently rated 'AAA', Stable Outlook by Fitch.
Fitch also maintains an unenhanced rating of 'A', Stable Outlook on the bonds based on the GO pledge of the state's full faith and credit (rated 'A', Stable Outlook by Fitch). The bonds remain a general obligation of the state even though the source of repayment is expected to be the securities in the escrow deposit fund, further described below. For more information on the State of California GO rating, see press release dated April 4, 2014 available at 'www.fitchratings.com'.
The GO bonds were refunded with proceeds of the state's various purpose GO refunding bonds. The ratings apply to the bonds listed by CUSIP numbers, below.
Pursuant to an irrevocable escrow certificate, State Treasurer, as escrow agent, holds a separate special irrevocable account, established by the State Controller within the state's escrow fund, in trust for the benefit of the refunded bondholders. All cash and securities held in this account are pledged irrevocably to the payment when due of interest on the refunded bonds and the payment of principal upon redemption. In the future, any substitute or additional investments may also include senior unsubordinated direct obligations of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation that are non-callable and non-prepayable. In addition, up to $5,000 may be held in the State's Surplus Money Investment Fund.
Grant Thornton verified the mathematical accuracy of computations relating to the adequacy of income from escrowed funds and securities to pay debt service requirements of the refunded bonds. These computations were contained in schedules provided to them by Merrill Lynch, Pierce Fenner & Smith, Incorporated, underwriter for the refunding bonds, and Public Resources Advisory Group, financial advisor to the State. According to the Grant Thornton verification report, the anticipated receipts from the SLGs and cash deposited in the escrow account will be sufficient to pay when due the principal and interest on the refunded bonds. Prior to accepting substitute or additional investment securities or disbursing funds to the State, the escrow agent must receive a new report verifying the continued sufficiency of escrowed funds to meet all future payments of principal and interest on the refunded bonds.
RATING SENSITIVITIES:
The rating is exclusively tied to the U.S. sovereign creditworthiness and will reflect all changes to that rating.
The 'AAApre' rating applies to the bonds with the following CUSIP numbers:
13062PA44
13062PA51
13062PA69
13062PA77
13062PA85
13062PA93
13062PB27
13062PB35
13062PB43
13062PB50
13062PB68
13062PB76
13062PB84
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'U.S. Municipal Structured Finance Criteria', Feb. 24, 2014;
--'Guidelines for Rating Prerefunded U.S. Municipal Bonds', Dec. 2, 2013.
Applicable Criteria and Related Research:
U.S. Municipal Structured Finance Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=736618
Guidelines for Rating Prerefunded U.S. Municipal Bonds
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724818
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827459
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