Pure Water Rising

Citing recent changes to a standby bond purchase agreement, Moody’s Investors Service last week upgraded its short-term rating to VMIG-1 from VMIG-3 on $103 million of pure water 2002B refunding revenue bonds issued by the Ohio Water Development Authority in 2002. 

The rating agency also affirmed its Aaa rating on the debt. 

The amendment to the SBPA, which is provided by State Street Bank and Trust Co., says that the agreement can now only be terminated or suspended for events that are related to both the authority and the insurer, MBIA Insurance Corp. Prior to the change, the agreement could be terminated or suspended for events related solely to the credit quality of MBIA.

Under the new agreement, the bank can suspend or terminate its obligation to purchase the bonds without notice under a number of circumstances that pertain to both the insurer and the authority. For example, the bank could terminate its obligation to purchase the bonds if the insurer undergoes certain bankruptcy or insolvency events and the relevant bonds are downgraded to below investment grade by each of the two rating agencies that rates the debt.

The bank can also terminate or suspend the agreement if the insurer repudiates its obligations under the insurance policy and the authority repudiates its obligations to pay any principal and interest on the bonds.

The short-term upgrade comes after the long-term rating on the pure-water bonds was upgraded by both Standard & Poor’s and Moody’s in recent months.

Standard & Poor’s upgraded the bonds to AAA from AA in late June, reflecting the successful history of the program. Moody’s upgraded the 2002 to Aaa from Aa2 in February, citing the program’s strong debt service coverage provided by the loans securing the bonds. The pure water program includes 166 municipal borrowers and $141.4 million in aggregate loans.

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