LOS ANGELES — As a result of its downgrade of Assured Guaranty Municipal Corp. and Assured Guaranty Corp, Moody's Investors Service has taken actions on the long-term and short-term ratings of 78 variable rate demand bonds.
Moody's downgraded AGM to A2 from Aa3 last week and dropped Assured Guaranty to A3 from Aa3.
Issuers that received either short-term or long-term downgrades to VRDBs guaranteed by Assured include New York City, Long Island Power Authority, New Jersey Turnpike Authority, Maine Health and Higher Education Facilities Authority, and Triborough Bridge and Tunnel Authority.
"The long-term rating of each of these debts reflects the higher of the insurance financial strength rating of the applicable financial guarantor and the public underlying rating (if any) of the bond," the report said. "The short-term ratings reflect the rating of the liquidity support provider and the risk that the liquidity commitment will terminate with no prior opportunity for investors to tender their bonds."
Most of Moody's short-term ratings of VRDBs are capped at the liquidity support provider's short-term rating.
"Moody's transitions short-term ratings of VRDBs insured by a financial guarantor below the liquidity support provider's short-term rating as the financial guarantor's long-term rating changes to reflect the changes in the risk that the liquidity support provider's commitment to purchase bonds will terminate with no opportunity for investors to tender their bonds," Moody's wrote.
Generally, standby bond purchase agreements supporting insured VRDBs terminate immediately and automatically as a result of certain guarantor credit events, with no opportunity for investors to tender their bonds, analysts said.
These events include nonpayment by the financial guarantor, financial guarantor insolvency or bankruptcy, invalidity or repudiation of the bond insurance policy, or a downgrade to a below investment grade rating.
In some cases, the SBPAs do not include automatic termination, in which case Moody's transitions the short-term ratings as the applicable financial guarantor's rating changes on a schedule parallel to that on which ratings of unsecured short-term obligations of a financial institution transition relative to its long-term rating.