(The following statement was released by the rating agency)
March 16 - On the effective date of March 28, 2012, Fitch Ratings will upgrade to ‘AA+/F1+’ from ‘AA-/F1’ the ratings assigned to the $43,445,000 Development Authority of Monroe County pollution control revenue bonds (Oglethorpe Power Corporation Scherer Project), series 2010A (‘bonds’).
The rating action will be in connection with the mandatory tender and substitution of the irrevocable direct-pay letter of credit (LOC) previously provided by Bank of America, N.A. (rated ‘A/F1’, Outlook Stable) with a substitute LOC to be issued by Bank of Montreal (rated ‘AA-/F1+', Outlook Stable).
The long-term rating will continue to be determined using Fitch’s dual-party pay criteria and will be based jointly on the underlying rating assigned to the bonds by Fitch (currently rated ‘A’, Outlook Stable), and the support provided by the substitute LOC. The short-term ‘F1+’ rating will be based solely on the substitute LOC.
Fitch’s dual-party pay criteria consider the likelihood of the failure of both a rated obligor and a bank LOC provider. The methodology results in a long-term rating that is up to two notches higher than the stronger of the two credits 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 municipal issuer and the bank 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 bank and the rated obligor have no more than a medium degree of correlation. Fitch has determined a low degree of correlation between Bank of Montreal and the obligor which results in a long term rating of ‘AA+’ for the bonds. If either the underlying bond rating or the bank rating were downgraded to ‘A-’ or lower, the dual-party pay criteria could no longer be applied, and the long term rating assigned to the bonds would then be adjusted to the higher of the bank rating and the underlying bond rating.
Pursuant to the substitute LOC, the bank is obligated to make payments of principal of and interest on the bonds upon maturity and redemption, as well as purchase price for tendered bonds. The ratings will expire upon the earliest of: (a) May 8, 2015, the initial stated expiration date of the substitute LOC, unless such date is extended; (b) conversion to a rate mode other than weekly or daily interest rate; (c) any prior termination of the substitute LOC; and (d) defeasance of the bonds. The substitute LOC provides full and sufficient coverage of principal plus an amount equal to 45 days of interest at a maximum rate of 12% based on a year of 365 days and purchase price for tendered bonds, while in the weekly and daily rate modes. A mandatory tender of the bonds will occur on the substitution date. The Remarketing Agent for the bonds will be BMO Capital Markets.