S
tructured municipal financings are an integral
part of the municipal debt market. Structured
debt includes conventional transactions—such as
bonds, notes, and commercial paper (CP)—secured
by various types of credit and liquidity facilities,
and secondary-market derivative products—such as
principal and interest strips, custodial receipts, and
tender option bonds.
Standard & Poor’s Ratings Services rates primary
market structured debt on the basis of third-party
credit or liquidity support without regard to the
issuer’s underlying rating. To substitute the third-
party credit provider’s rating for that of the issuer,
the credit provider must secure debt service pay-
ments, and/or, in the case of bonds with demand
options, guarantee payment of tenders.
In the secondary market, a municipal trust struc-
ture is used to issue receipts and act as a conduit for
the payment of principal, interest, and premiums, if
any, from the underlying obligation to the derivative
receipt holder. The rating of the derivative is deter-
mined by the rating on the underlying bonds, which
must have a current Standard & Poor’s rating.
However, the rating on the derivative may also be
enhanced by using credit and/or liquidity support.
Standard & Poor’s assigns a long-term or note
rating to fixed-rate municipal bonds and notes. A
dual rating (for example, ‘AAA/A-1+’) is assigned
to municipal variable-rate demand obligations
(VRDOs) and generally benefit from credit and/or
liquidity enhancment. The first component of the
dual rating reflects the likelihood of payment of
principal and interest when due. The second com-
ponent addresses the demand feature of the bond
and the likelihood of payment of the purchase price
of tendered bonds. In the case of short-term vari-
able-rate notes, Standard & Poor’s note rating sym-
bols (for example, ‘SP-1+/A-1+’) are used for the
first component of the rating instead of long-term
symbols. For municipal commercial paper pro-
grams, Standard & Poor’s commercial paper sym-
bols are used (for example, ‘A-1+’).Outlooks are generally placed on VRDOs that
have credit provided by other than an LOC bank.
The outlook will reflect the outlook of the obligor
or bond insurer as applicable. Commercial paper
ratings, due to the tenor of the security do not
receive outlooks.■Introduction to Structured Finance .................................................................................. VIII. Municipal Structured Finance
http://www.standardandpoors.com 207The primary documents needed to rate structured issues
are listed below. While the list is fairly standard, additional
documents may be requested in order to complete a rating.Primary market issues
■Rating request.
■Trust indenture.
■Letter of credit or SBPA as applicable.
■Authorizing resolution.
■Remarketing agreement.
■Paying/tender agent agreement.
■Depository agreement (commercial paper issues only).
■Preference opinion, if requested.
■Enforceability opinion(s), if requested.
■Offering memorandum.
Secondary market issues
■Rating request.
■Custody/trust agreement.
■Offering memorandum, if requested.
■Cash flow verification, if requested.
■Offering memorandum for underlying security.
■Tender option agreement, if applicable.
■Broker-dealer agreement, if applicable.
■Auction agent agreement, if applicable.
■Market agent agreement, if applicable.
■Credit or liquidity support documents.
■Tax opinion.
■Enforceability opinion(s), if applicable.
■True sale opinion, if applicable.Documentation RequirementsMunicipal Structured Finance