PubFinCriteria_2006_part1_final1.qxp

maturity, and the greater the volatility and market
risk of the assets, then the higher the coverage
requirement such as 1.50 for investment grade corpo-
rate notes becomes. Logically, the reverse holds true.
As the asset’s weighted average maturity and market
risk declines and credit quality increases, the lower
the asset coverage requirement. Generally,
Standard & Poor’s will discount U.S. Treasury debt

obligations and highly rated money market funds at a

ratio of 1:10 and will apply higher discount ratios of

1:20 and above for all other securities.

The discount ratio is also a function of how fre-

quently an issuer plans to have assets valued in the

market. While monthly valuations for high quality

assets such as U.S. Treasuries may be adequate,

daily or weekly valuations are recommended for

Commercial Paper, VRDO, And Self-Liquidity

http://www.standardandpoors.com 23

Standard & Poor’s Corporation

Public Finance Department

55 Water Street

New York, New York 10041

Dear Standard & Poor's,

In connection with the $xx million “Issuer” variable-rate demand obligation bonds series 200x, “Issuer” (the “Guarantor”) is guaranteeing

the payment of the purchase price of any of these bonds that are tendered for purchase and not remarketed. The Guarantor has

requested that Standard & Poor’s provide its short-term ratings for these bonds, as based on the credit and liquidity of the Guarantor.

The purpose of this letter (“Liquidation Letter”) is (i) to specify the available sources of the Guarantor for payment of purchase price on

the bonds in the event of a failed remarketing; (ii) to provide contact information for officials of the Guarantor responsible for activating

procedures to provide required funding to the Transfer Agent or Trustee to cover the purchase price of bonds subject to a failed

remarketing, and (iii) to outline specific procedures that would be followed in the event of a failed remarketing.

Sources “Issuer” as Guarantor would have available in the event of a failed remarketing on the bonds.

As summarized below, the “Issuer” has a number of potential sources of funds in which, as Guarantor on the bonds, it would access

in order to respond to a failed remarketing event for the bonds. In the event of a failed remarketing, the “Issuer” would access the

source of funds most favorable to it at the time of any failed remarketing. Among the sources of funds available to the “Issuer” are

the following:

■Liquidation of General Fund investments: The “Issuer” could elect to liquidate investments held in its General Fund in order to meet

any failed remarketing funding requirement on the bonds. At Dec. 31, 2000, the General Fund approximated $1.3 billion in value and

consisted of a diversified portfolio of publicly traded equity and fixed-income investments in addition to illiquid alternative invest-

ments.The “Issuer” maintains cash and liquid assets at [NAME OF CUSTODIAL BANK], which acts as our custodial bank for all

“Issuer” investments not held by a bond trustee or invested in an external commingled pool. Four senior staff the within Treasury

department plus the “Issuer’s” chief financial officer are authorized to direct [NAME OF CUSTODIAL BANK] in securities transac-

tions and/or the wiring of funds.

■Use of reverse repos: Rather than actually sell investments of our General Fund in the event of a failed remarketing on the bonds,

the “Issuer” would most likely set up a reverse repo of government or agency securities from its investment funds in order to raise

cash in the short term. The “Issuer” has completed reverse repos from time to time over the past few years and has agreements

in place to do them again, if necessary. Four senior staff within the Treasury department are authorized to initiate reverse repo

transactions with our banks.

The “Issuer” agrees to notify Standard & Poor’s in the future if these sources of potential funding are unavailable to meet any failed

remarketing of the bonds, or if new funds or sources of liquidity are substituted as sources to meet the funding of the purchase price

on the bonds in the event of a failed remarketing.

Principal officials of the Guarantor responsible for meeting failed remarketing funding requirements of the bonds.

[NAMES]

[E-MAIL ADDRESSES]

[TELEPHONE NUMBERS]

[FAX NUMBERS]

Summary of specific procedures in the event of a failed remarketing.

The bonds may be remarketed by the Remarketing Agent in a number of potential modes ranging from one day to seven days, to

a short-term period of any number of days up to 180 days under which there are optional or mandatory tender provisions for the

bondholder that would require purchase of the bonds by the Guarantor in the event of a failed remarketing of the bonds. Summarized

below are the specified procedures for the meeting the funding requirements of a failed remarketing of the bonds under various modes:

Sample Liquidation Letter