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Liquidity Assessments

In some cases, creditworthy tax-exempt debt issuers with substantial liquidity have found it cost-effective to use their liquid assets to provide liquidity support for Commercial Paper (CP) and Variable Rate Demand Obligations (VRDO) tender obligations as an alternative to bank liquidity facilities – including lines of credit and standby bond purchase agreements – that have traditionally been used to provide liquidity support. Standard & Poor’s continually receives inquiries from tax-exempt issuers – including states and local governments, housing agencies, universities, hospitals and other not-for-profit entities, regarding the use of their own assets as a substitute for bank liquidity facilities.

Background
Liquidity Assessments, which evaluate an issuer's ability to provide liquidity support, were introduced in 2000. Issuers have indicated to S&P Global Ratings that bank liquidity facilities are often expensive and that they can be cumbersome to administer. Since the introduction of liquidity assessments to the tax-exempt market four years ago, S&P Global Ratings has provided liquidity assessments to all types of tax-exempt issuers – providing an independent view of their ability to use their own liquid assets as liquidity support.

What is included in an S&P Global Ratings’ Liquidity Assessment?
An S&P Global Ratings’ Liquidity Assessment includes the following:
• An analysis of the liquidity, market risk, and volatility of the issuer’s current cash, fixed-income portfolio holdings, and liquid assets,
• An assessment of management’s plans to provide cash, as outlined in its “Liquidation Letter” including a current maximum dollar assessment of the issuer’s ability to raise cash or provide liquidity on its own, and
• A review of the issuer’s investment policies and risk-management procedures and operations.

U.S. Public Finance Research

Today’s municipal market is increasingly complex and challenging. We understand that to make decisions with confidence, you want new insights about credit risk. Whether you are an issuer, intermediary or investor, you need information about this risk that’s based on in-depth market knowledge, forward-looking analyses and transparent criteria. And that’s where our insight is essential.

Issuer requests the “Liquidity Assessment” – The issuer files a formal, written request to S&P Global Ratings, providing the required information as indicated below under review and assessment.

Review and Assessment – S&P Global Ratings’ analysts review the information, conduct management meetings with the issuer’s investment personnel and/or sub-advisers, and issue the assessment.

The information that S&P Global Ratings evaluates for a Liquidity Assessment includes:
• Biographies of treasury staff & portfolio management staff,
• Liquidation procedures letter,
• Portfolio holdings report,
• Month-end balances of fixed-income portfolios, and
• Investment policy related to fixed-income portfolios and other eligible assets.

Surveillance – To maintain an ongoing assessment of the issuer’s liquidity profile, S&P Global Ratings monitors key information related to the fixed-income portfolios, including the available liquid assets, on a monthly basis. S&P Global Ratings also conducts an annual management review to identify any changes in management, policy, strategy, and operations.

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