Fitch Rates Santa Clara VRD Subordinated Electric Revs 'AAA/F1+'

Business Wire, May 15, 2008

NEW YORK -- Fitch Ratings assigns a rating of 'AAA/F1 ' to the $86,815,000 City of Santa Clara, CA, variable rate demand (VRD) subordinated electric revenue bonds, series 2008B. Currently, the City of Santa Clara has no bonds or other obligations which are senior to the 2008 B Bonds. The long-term 'AAA' is based jointly on the City of Santa Clara, CA electric revenue bonds (currently rated 'A' by Fitch) and the support provided by an irrevocable, direct-pay letter of credit (LOC) issued by Dexia Credit Local, (currently rated 'AA /F1 ' by Fitch) securing the bonds. The short-term 'F1 ' rating is based solely on the LOC.

The long-term 'AAA' rating is based on Fitch's methodology which considers the likelihood 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; (3) and the credit of the bank and the rated obligor have no more than a medium degree of correlation. In this instance, there is a low degree of correlation. If either the City of Santa Clara, CA, electric revenue bonds, or Dexia Credit Local were to be downgraded to below 'A', this methodology would no longer be applicable and the long term rating would revert to the higher of the bank's or the city's long term rating.

The bank is obligated to make payments of principal and interest when due as well as purchase price for tendered bonds during the weekly and daily interest modes. The rating will expire upon the earliest of: May 29, 2011, the initial expiration date of the LOC, unless such date is extended; any prior termination of the LOC; or defeasance of the bonds. The LOC provides full coverage of principal plus an amount equal to 45 days' interest at a maximum rate of 12% based on a 365-day year, and purchase price for tendered bonds. The remarketing agent for the bonds is JP Morgan Chase & Co. The bonds are expected to be available for delivery on or about May 29, 2008.

The bonds will initially bear interest in the weekly interest rate mode, but may be converted to a daily rate, a bond interest term rate, long-term rate or auction rate mode. While in the weekly mode, interest will be paid on the first business day each month, commencing July 1, 2008. While the bonds are in the weekly rate mode, bondholders may tender bonds on any business day with the requisite prior notice. The bonds are subject to mandatory tender: on any mode change date or conversion date; and upon the expiration, termination or substitution of the LOC. Optional and mandatory redemption provisions also apply to the bonds.

The City is issuing the 2008 B bonds to currently refund a portion of the city's series 1998 A bonds, fund a reserve and to pay costs of issuance.

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.