that immediatelysuspend the SBPA provider’s obli-
gation to purchase are viewed the same as immedi-
ate termination events.
As a result of the limited number of termination
or suspension events, the SBPA provider’s short-
term issuer credit rating becomes the short-term
rating on the bond issue. Note that Standard &
Poor’s will apply the same restrictions to the condi-
tions precedent to purchase section of the SBPA, as
that section can have the same effect on the provider’s
payment obligation. If two or more SBPA providers
combine to severally support a bond issue, the
short-term rating will reflect the lowest short-term
issuer credit rating of any of them.
Unless additional self-liquidity is provided and
evaluated, a liquidity rating based on an SBPA
cannot be higher than the equivalent long-term
bond rating of the issue (see chart, “Correlation Of
CP Ratings With Long-Term Ratings”),since the
bank’s obligation to fund the purchase price for
tendered bonds is conditioned on the obligor or
insurer’s ability to meet its debt obligations. The
liquidity rating of the issue will be based on the
lower of the short-term rating assigned to the bank
or the short-term rating correlating to the long-term
rating of the bond issue. Therefore, the likelihood
of the bank terminating its obligation to purchase
the tendered bonds is correlated to the long-term
rating of the bond issue.
The SBPA(s) must provide principal coverage of
the full par amount of the issue, and interest cover-
age for the longest interest accrual period for the
modes that the SBPA is covering. Interest coverage
should be calculated at the maximum rate permit-
ted on the bonds. The interest accrual period
extends from the day any interest mode becomes
effective or from the last interest payment date to
and including the day before a regularly scheduled
interest payment date. If a mandatory tender can
occur on a day other than a regularly scheduled
interest payment date, additional coverage may be
needed. The SBPA agreement should specify that
the provider would pay with immediately available
funds. In addition, as with the LOC criteria, the
SBPA provider must specifically state that they will
pay with their own funds.Permitted Automatic Termination Events
Uninsured liquidity facilities
Standard & Poor’s allows the following events to
result in a termination or suspension without notice
of an SBPA providing liquidity enhancement to
uninsured bonds:- Failure to pay principal of or interest on the
bonds being rated (including bank bonds). - Failure to make payment on any debt on
parity with, or senior to, the bonds being rated
(includingbank bonds). - The issuer or obligor challenges the validity or
enforceability of the bond documents or liquidity
documents, or any court or governmental
authority having jurisdiction over the transaction
finds or rules that the bond documents or liquidi-
ty documents or any material provision thereof
relating to the payment of principal and interest
on the bonds being rated (including bank bonds),
are not valid and binding. This includes, in cer-
tain cases, a similar determination by the obligor,
court, or governmental authority that the defined
pledged security for the bonds, as stated in the
bond documents, is no longer valid or enforceable. - The obligor begins proceedings relating to bank-
ruptcy, insolvency, reorganization, or relief from
debtors, or admits its inability to pay its debts in
writing, or the occurrence of an involuntary
bankruptcy event. - Standard & Poor’s reduces the bond rating to
below investment grade (below ‘BBB-’), or the
rating is suspended or withdrawn for credit-
related reasons. - The IRS declares the bonds taxable.
Bank Liquidity Facilitieshttp://www.standardandpoors.com 27AAAAA+AAAA-A+AA-BBB+BBBBBB-A-1+A-1A-2A-3
*Dotted lines indicate combinations that are highly unusual.Correlation Of CP Ratings With
Long-Term Credit Ratings*