Fitch Rates San Jose Finance Authority's $28MM Lease Revs 'AAA/F1+'

Business Wire,  June 23, 2008  

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NEW YORK -- Fitch has assigned a 'AAA/F1+' rating to the $27,885,000 City of San Jose Financing Authority lease revenue bonds, (Ice Centre Refunding Project), series 2008E. (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 '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) (rated 'AA' by Fitch), and the support provided by a severally obligated LOC issued by Bank of America (50%) and CalSTRS (50%) (the banks, currently rated 'AA/F1+' and 'AAA/F1+', respectively by Fitch) securing the bonds.

The short-term 'F1+' rating is based solely on the LOC. The long-term 'AA' rating of Bank of America is on negative watch as of March 7, 2008. (For more information on the underlying credit please refer to Fitch's release dated June 17, 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 banks providing LOC support. The methodology results in a rating that is up to two notches higher than the stronger of the two credits (Bank of America 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 LOC.

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: (a) July 3, 2010, the initial stated expiration dates of the LOC, unless such date is extended; (b) following a conversion of the Bonds from the weekly rate mode; (c) upon any prior termination of the LOC; or (d) upon defeasance of the bonds. The underwriter for the Bonds is Citigroup Global Markets, Inc. The bonds are expected to be delivered on or about July 3, 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 August 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 third business 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 2000 and 2004 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.

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