Fitch to Take Various Rating Actions on MICLA Lease Rev CP Notes

Fri Jun 7, 2013 3:23pm EDT

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Fitch to Take Various Rating Actions on MICLA Lease Rev CP Notes

On the effective date of June 14, 2013, Fitch will confirm the ratings on the following Municipal Improvement Corporation of Los Angeles (MICLA, the corporation) lease revenue commercial paper (CP) notes:

--CP notes series A-1 (tax-exempt) and B-1 (taxable) at 'F1+';

--CP notes series A-2 (tax-exempt) and B-2 (taxable) at 'F1';

--CP notes series A-3 (tax-exempt) and B-3 (taxable) at 'F1'.

The confirmation of the ratings is in connection with the issuance of amended and restated letters of credit (LOCs) and reimbursement agreements for each respective series, effective June 14, 2013, which, for the series A-2 and B-2 and the series A-3 and B-3 CP notes, extend the expiration dates and change the available commitment amount of the LOCs to reflect changes in the authorized amounts. As of the effective date, a maximum of $130,000,000 aggregate principal amount of authorized notes may be outstanding at any given time for series A-1 and B-1, a maximum of $107,500,000 for series A-2 and B-2, and a maximum of $47,500,000 for series A-3 and B-3.

On the same effective date, Fitch will also assign a rating of 'F1+' to the corporation's CP notes series A-4 (tax-exempt) and B-4 (taxable). A maximum of $50,000,000 aggregate principal amount of authorized notes may be outstanding at any given time for series A-4 and B-4.

KEY RATING DRIVERS:

On the effective date, the 'F1+' rating on the series A-1 and B-1 notes, the 'F1' rating on the series A-2 and B-2 notes and the 'F1' rating on the series A-3 and B-3 notes will continue to be based on the Wells Fargo Bank, National Association (rated 'AA-/F1+', Stable Outlook), JPMorgan Chase Bank, National Association (rated 'A+/F1', Stable Outlook), and Bank of the West (rated 'A/F1', Stable Outlook) LOCs, respectively, which provide coverage for the principal amount of the CP notes plus interest payable at maturity for each respective series.

The rating on the series A-1 and B-1 notes will expire on Feb. 24, 2016; the rating on the series A-2 and B-2 notes will expire on June 13, 2016; and the rating on the series A-3 and B-3 notes will expire on June 13, 2016, the expiration dates of each LOC, unless in each case such date is extended, or the respective LOC is earlier terminated.

On the effective date, the 'F1+' rating for the series A-4 and B-4 notes will be based on the support provided by an irrevocable direct-pay LOC issued by U.S. Bank, National Association (rated 'AA-/F1+', stable outlook). The rating on the series A-4 and B-4 notes will expire on the earlier of June 13, 2016, the expiration date of the LOC, unless such date is extended, or upon any prior termination of the LOC.

As authorized under a second Amended and Restated Issuing and Paying Agent Agreement, Wells Fargo Bank, National Association will continue as the Issuing and Paying Agent (IPA) for all four series of CP notes and is directed to request an advance under each respective LOC to pay principal and interest on maturing notes. Proceeds of the sale of rollover notes will be used to reimburse the bank. The IPA may not allow notes to be issued in an amount that exceeds the amount available under the LOC. The series A-1 and B-1 Wells Fargo LOC provides sufficient coverage for note issuance up to $136,500,000 inclusive of interest coverage; the series A-2 and B-2 JP Morgan Chase Bank LOC provides sufficient coverage for note issuance up to $112,875,000 inclusive of interest coverage; the series A-3 and B-3 Bank of the West LOC provides sufficient coverage for note issuance up to $49,875,000 inclusive of interest coverage; and the series A-4 and B-4 U.S. Bank LOC provides sufficient coverage for note issuance up to $52,500,000 inclusive of interest coverage.

MICLA is authorized to issue callable CP Notes for series A-2 and B-2, with the option to redeem the CP Notes prior to maturity. The IPA is instructed to draw on the JPMorgan Chase Bank LOC to pay for the accrued interest due on series A-2 and B-2 callable CP notes on their specified early redemption date. The principal amount due on the redemption date of series A-2 and B-2 callable CP notes will be paid from proceeds of refunding bonds or certificates of participation and rollover notes. In the event sufficient moneys are not available on the specified redemption date, the callable CP notes are not required to be redeemed and the redemption is cancelled.

The tax-exempt series A-1, A-2, A-3 and A-4 CP notes will be issued at par with interest due at maturity. The taxable series B-1, B-2, B-3 and B-4 CP notes may be issued at par or at a discount, although series B-2 callable CP notes may only be issued at par. Following the occurrence of an event of default under each LOC, the respective bank may direct the IPA to immediately stop the issuance of any additional notes. In such event, the respective LOC remains available to pay outstanding CP notes as they mature, and will expire only after all the notes supported by such LOC mature and have been paid from funds drawn on the LOC.

The dealers for the non-callable notes are: Backstrom McCarley Berry & Co. LLC; Merrill Lynch, Pierce, Fenner & Smith Incorporated; J.P. Morgan Securities LLC; Loop Capital Markets, LLC; U.S. Bancorp Investments, Inc.; and Wells Fargo Bank, National Association. Additionally, the dealers for the series A-2 and B-2 callable CP notes are: Backstrom McCarley Berry & Co.; J.P Morgan Securities LLC; and Loop Capital Markets, LLC.

RATING SENSITIVITIES

The ratings are exclusively tied to the short-term ratings that Fitch maintains on the banks providing the LOCs and will reflect all changes to those ratings.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

--'U.S. Municipal Structured Finance Criteria', Feb. 27, 2013;

--'Rating Guidelines for Variable-Rate Demand Obligations and Commercial Paper Issued with External Liquidity Support', Jan. 31, 2013.

Applicable Criteria and Related Research:

U.S. Municipal Structured Finance Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=701570

Rating Guidelines for Variable-Rate Demand Obligations and Commercial Paper Issued with External Liquidity Support
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=699392

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Fitch Ratings
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