against the escrow fund and waives any rights it
may have to enforce the obligations of the issuer
to the FPC provider from any amounts or securi-
ties on deposit with the escrow agent. Any dam-
ages due to the FPC provider or any transferee
may be paid from amounts on deposit in the
escrow fund only after all bondholders have been
paid in full.
■Amendments to the escrow agreement or the FPC
should be subject to Standard & Poor’s confirma-
tion that such actions will not adversely affect the
then current rating on the bonds.
■If the FPC provider transfers the FPC, confirma-
tion should be requested from Standard & Poor’s
that such transfer would not adversely affect the
then current rating on the bonds.
■The FPC provider may not deliver “partial inter-
ests” in securities—securities jointly owned by
the seller and the escrow agent. The new securi-
ties should be held by the escrow agent under the
escrow and mature on or before the date that the
escrow agent needs funds to make debt service
payments on the bonds. Standard & Poor’s does
not assume that the market value of the new
securities, if liquidated prior to their maturity,
will be sufficient to pay debt service.
■The escrow agreement should provide that if the
parties enter into a FPC subsequent to the date
that Standard & Poor’s rated the escrowed bonds,
the escrow agent receives written evidence from
Standard & Poor’s that the FPC will not adversely
affect the then current rating on the bonds.
Legal opinions
To ensure that the escrow funds will be available
to pay debt service on the defeased obligations,
Standard & Poor’s requires that in addition to the
opinions required in the defeasance criteria, the
following opinions be delivered in connection with
a FPC:- An opinion of counsel to the effect that, if the
FPC provider becomes insolvent, the escrow funds
(including the newly delivered securities) and pay-
ments on the bonds would not be recoverable as a
preference by the debtor in possession, trustee,
receiver, or other conservator or liquidator of the
FPC provider.- An opinion of counsel to the effect that, in an
insolvency of the FPC provider, the escrow funds
(including the newly delivered securities) and any
payments made from it would not be subject to the
automatic stay or any stay imposed by a conserva-
tor, receiver, or liquidator of the seller (and, if
applicable, that the agreement satisfies the require-
ments of Section 13 (e) of the Federal Deposit
Insurance Act). - An opinion of counsel to the effect that, in the
event of the insolvency of the FPC provider, the
escrow funds, including the newly delivered securi-
ties, and all proceeds thereon would not be consid-
ered part of the FPC provider’s assets available for
liquidation by any trustee, conservator, receiver or
liquidator to the FPC provider’s creditors.
For example:
■FPC providers that are subject to the Bankruptcy
Code: the opinions should address items 1-3 and
include references to Sections 362(a), 541, and
547 of the Bankruptcy Code.
■FPC providers that are FDIC insured: the opinion
should address items 1-3 as reflected in the provi-
sions of FIRREA and the Federal Deposit
Insurance Act (FDIA).
■FPC providers that are not FDIC insured or sub-
ject to the Bankruptcy Code: the opinion should
address items 1-3 as reflected by the relevant
state and foreign, if applicable, regulatory provi-
sions. - If the FPC is entered into subsequent to the
creation of the escrow:
■Confirmatory opinion stating that the opinions
set forth in legal defeasance opinion and the tax
opinions rendered at the closing of the escrow
agreement are not affected by the execution,
delivery, and performance of the FPC; and
■An opinion to the effect that the execution, deliv-
ery, and performance of the FPC is legal, valid,
binding, and enforceable and does not require the
consent of the bondholders.■
Municipal Structured Finance224 Standard & Poor’s Public Finance Criteria 2007