Fitch Ratings has assigned an 'AA/F1+' rating to the $100,000,000 City of Lakeland, Florida, variable rate energy system revenue and refunding bonds, series 2008B (the 'bonds'). The rating is based on the rating of a direct-pay letter of credit ('LOC') supporting the bonds and the application of Fitch's joint probability methodology. The long-term 'AA' rating assigned to the bonds is based, jointly, on the underlying rating assigned to the bonds (rated 'A+' by Fitch) and the support provided by an LOC issued by SunTrust Bank (the 'Bank,' currently rated 'A+/F1+' by Fitch) securing the bonds. The bank's long-term 'A+' rating is on Rating Watch Negative as of March 7, 2008. The short-term 'F1+' rating is based solely on the LOC.
The long-term 'AA' rating is based on Fitch's methodology which considers the joint probability of the failure of both a rated obligor and a bank LOC provider. The methodology results in a 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 correlation. Fitch has determined that there is a low degree of correlation between the bank and the city, which results in a rating of 'AA'. If either the city or the bank 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 LOC.
The bank is 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 56 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: (1) July 29, 2011, the initial stated expiration dates of the LOC, unless such date is extended; (2) following a conversion of the bonds to an interest rate mode other than the daily or weekly mode; (3) upon any prior termination of the LOC; or (4) upon defeasance of the bonds. The underwriter for the bonds is SunTrust Robinson Humphrey, Inc.
The bonds initially bear interest at a daily rate mode, but may be converted to a weekly, flexible, term, ARS or fixed rate mode. While the bonds bear interest in the daily or weekly rate mode, interest payments will be the first business day of each month, commencing Sept. 2, 2008. Holders may tender their bonds on any business day following the required prior notice.
The bonds are subject to mandatory tender on: (1) any mode change date (except between the daily and weekly modes, (2) any substitution date, (3) the fifth business day prior to the expiration of the LOC, (4) the date specified by the paying agent following the occurrence of and event of default under the reimbursement agreement which is a business day not more than 20 nor less than 15 days after receipt of such notice from the LOC provider, or (5) any business day not less than 20 days after the paying agent's receipt of notice from the city.
Bond proceeds will be used by the city to repay certain indebtedness, finance a portion of certain capital improvements to the city's electric power system and to pay certain costs and expenses related to the issuance of the 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.
Contacts:
Kevin Corrigan, +1-212-908-9156
Sandro
Scenga, +1-212-908-0278 (Media Relations)
