Moody's Investors Service is reviewing documents New York City has sent the rating company in connection with substitute letters of credit in support of the city's general obligation bonds, fiscal 2004 subseries A-4 and A-5.

City officials requested the review.

About $75 million of debt stands to be affected, Moody's said in a statement Wednesday. Bank of Montreal will provide the letters of credit.

The Bank of Montreal's long-term and short-term issuer ratings are Aa3 and P-1, respectively. Moody's now maintains an underlying rating of Aa2 on the bonds.

Moody's is using joint default analysis that reflects its approach to rating jointly supported transactions. It will base such ratings upon the long-term rating of the bank, the underlying rating of the bonds, and the structure and legal protections of the transaction.

"Since a loss to investors would occur only if both the bank and NYC default in payment, Moody's expects to assign ratings based upon the joint probability of default by both parties," the rating company said in a statement. "In determining the joint probability of default, Moody's considers the level of default dependence between the bank and NYC. In this case, Moody's has determined that there is a low level of default dependence, and, as a result, the joint probability of default results in a credit risk consistent with [joint default analysis] ratings of Aa1."

Upon the effective date of the letters of credit, now scheduled for Aug. 29, Moody's expects to upgrade letter-of credit backed ratings to Aa1 from Aa2 and affirm the short-term VMIG 1 ratings assigned to the bonds.

Moody's said any change in the bank's long-term or short-term rating, the underlying rating of the bonds, or a change in default dependence would result in a reevaluation of the ratings on the bonds.

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