Fitch Rtes $58.235MM San Jose Fin Auth, CA (Hayes Mansion) Lease Revs, Ser 2008C&D...

Fitch Rtes $58.235MM San Jose Fin Auth, CA (Hayes Mansion) Lease Revs, Ser 2008C&D 'AAA/F1+'

NEW YORK--(Business Wire)--
Fitch has assigned an 'AAA/F1+' rating to the $58,235,000 City of
San Jose (CA) Financing Authority lease revenue bonds (Hayes Mansion
Refunding Project), consisting of:

--$10,880,000 series 2008C;

--$47,355,000 Series 2008D.

The rating is based on the rating of a separate series direct-pay
letter of credit (LOC) supporting the bonds and the application of
Fitch's joint probability methodology. The long-term 'AAA' rating
assigned to the bonds is based jointly on the underlying rating
assigned to the City of San Jose Financing Authority lease revenue
bonds (the City) (currently rated 'AA' by Fitch), and the support
provided by a severally obligated LOCs issued by Bank of Nova Scotia
(50%) and CalSTRS (50%) (the banks; currently rated 'AA-/F1+' and
'AAA/F1+, respectively) securing the bonds. The short-term 'F1+'
rating is based solely on the LOC. (For more information on the
underlying credit please refer to Fitch's press release published on
June 5, 2008.)

The long-term 'AAA' rating is based on Fitch's methodology which
considers the joint probability of the failure of both a rated obligor
and the lowest rating of the severally obligated bank providing LOC
support. The methodology results in a rating that is up to two notches
higher than the stronger of the two credits (The Bank of Nova Scotia
and the City) if the following conditions are met: (1) both entities
have a rating of 'A' or higher; (2) the transaction is structured such
that payments from both the City and the banks are in the flow of
funds and both entities would have to fail to perform before the bonds
defaulted; and (3) the credit of the banks and the City have no more
than a medium degree of correlation. Fitch has determined that there
is a low degree of correlation between the banks and the City which
results in a rating of 'AAA'. If either the City or the banks were
downgraded to 'A-' or lower, the joint probability could no longer be
applied and the long-term rating would then reflect the higher of the
City and the rating based on the severally obligated issued LOCs.

The banks are obligated to make payments of principal of and
interest on the bonds upon maturity and redemption, as well as the
purchase price for tendered bonds. The LOC provides full coverage of
principal plus an amount equal to 34 days' interest at a maximum rate
of 12% based on a year of 365 days and purchase price for tendered
bonds. The ratings will expire upon the earliest of: June 26, 2010,
the initial stated expiration dates of the LOC, unless such date is
extended; following a conversion of the bonds from the weekly rate
mode; upon any prior termination of the LOC; or upon defeasance of the
bonds. Citigroup Global Markets, Inc is the underwriter for the series
2008C bonds and Lehman Brothers, Inc. is the underwriter for the
series 2008D. The bonds are expected to be delivered on or about June
26, 2008.

The bonds initially bear interest at a weekly rate mode, but may
be converted to a daily, monthly, flexible, auction, semiannual, long
term or fixed interest mode. While the bonds bear interest in the
weekly rate mode, interest payments will be made on the first business
day of each month, commencing July 1, 2008. Holders may tender their
bonds on any business day, provided the trustee is given at least
seven calendar days' prior notice of the purchase.

The bonds are subject to mandatory tender: (1) on a conversion
date; (2) on the substitution date; (3) on the fourth calendar day (or
if such date is not a business day, on the immediately preceding
business day) following the trustee's receipt of an event of default
notice from the bank stating that an event of default under the
reimbursement agreement has occurred; (4) on a business day not less
then ten days prior to the expiration date. Optional and mandatory
redemptions provisions also apply to the bonds.

Bond proceeds will be to refund all the authority's series 2001
bonds.

Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality,
conflicts of interest, affiliate firewall, compliance and other
relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings
Mario Civico, +1-212-908-0796, (New York)
(for information on the bonds)
Karen Ribble, +1-415-732-1756 (San Francisco)
(for information on the underlying bond rating)
Media Relations:
Christopher Kimble, +1-212-908-0226 (New York)

Copyright Business Wire 2008