articles Ratings /ratings/en/research/articles/200924-summary-fmsbonds-inc-series-2020-xf2907-tender-option-certificates-bonds-11667273 content
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In This List
SUMMARY

Summary: FMSbonds Inc. (Series 2020-XF2907); Tender Option Certificates/Bonds

Capital Markets View - October 2020

COMMENTS

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COMMENTS

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Summary: FMSbonds Inc. (Series 2020-XF2907); Tender Option Certificates/Bonds

Profile

Closing date:

Sept. 25, 2020

Series:

2020-XF2907

Liquidity provider:

Mizuho Capital Markets LLC

Credit provider:

Mizuho Capital Markets LLC

Guarantor:

Mizuho Bank Ltd.

Administrative agent:

FMSbonds Inc.

Remarketing agent:

JPMorgan Securities LLC

Rationale

S&P Global Ratings assigned the above-mentioned ratings to the taxable floater notes, reflecting its opinion of the likelihood the trust will have sufficient assets to pay timely interest and full principal when due on the notes.

Trust assets include all distributions of principal; interest; and premiums, if any, from the underlying securities and the liquidity facility, which is in place to support tender payments on the notes, as well as all such distributions from the standby letter of credit (LOC), which is in place to support principal-and-interest payments on the notes.

The long-term component of our rating on the notes reflects our long-term rating on the guarantor, as support for the standby LOC, and addresses full and timely interest-and-principal payments when noteholders have not exercised the put option. The short-term component reflects our short-term rating on the guarantor, as support for the liquidity provider. The short-term rating addresses full and timely interest-and-principal payments when noteholders exercise the put option.

Our ratings do not reflect our opinion of the likelihood noteholders will receive the full and timely payment of premiums or gain-share payments, and they do not reflect our opinion of the likelihood such payments will be subject to the entity funding such payments potentially filing for bankruptcy.

Based on our analysis, we think the trust's assets support the full and timely payment of all obligations on the notes, except in certain circumstances as described in the structural review section.

Structural Review

On the closing date, the trust acquired the underlying securities and concurrently entered into a liquidity agreement that supports tender payments on the notes and a credit-enhancement agreement in the form of a standby LOC that supports principal-and-interest payments from the underlying securities due to noteholders. The trust also entered into a guarantee that supports payments due under the liquidity and credit-enhancement agreements.

The standby LOC and guaranty act as credit support in the event the trustee does not receive scheduled interest or principal payments associated with the underlying securities. If the trustee does not receive a scheduled interest payment from the underlying securities by the taxable floater notes interest payment date that is sufficient to pay related accrued interest due to the noteholders on such date, then the note trustee draws on the standby LOC for the shortfall. The credit-enhancement agreement covers principal-and-interest payments that accrue between underlying security interest payment dates plus a preference period of 124 days. The liquidity facility covers principal-and-interest payments that accrue between underlying security interest payment dates plus the period before the latest related mandatory tender date in the event of a default under the credit-enhancement agreement.

The guaranty supports the liquidity provider's and credit provider's obligations in this transaction. This guaranty includes coverage of preference risk and remains in effect as long as any liquidity or credit provider obligations remain outstanding.

The trust has issued notes and residual certificates equal to or less than the par amount of underlying securities. The notes will evidence a beneficial interest in trust assets, and they will be payable solely from payments received by the trust attributable to trust assets. Any tax amounts due related to the notes or residual certificates are payable by such noteholders or certificateholders.

Put-option risks

The notes are a variable-rate issuance with a holder option to demand repayment before notes mature (known as the put or tender option), which is available during rated modes. The holders could exercise their put option with notice to the trustee and remarketing agent.

In the event a portion or all of the affected notes cannot be remarketed successfully, the liquidity provider will loan funds equal to any shortfall in the purchase price of the affected notes.

Early call/redemption risk

Notes are also subject to mandatory tender upon the occurrence of certain events detailed in trust documents. These events include:

  • An act of bankruptcy by the underlying obligor or guarantor;
  • The failure to make principal-and-interest payments on the notes by the liquidity provider, credit provider, or guarantor;
  • The ratings on the notes are lowered below 'BBB+' by the rating agencies;
  • A notice of material tax liabilities on the trust with the liabilities being disadvantageous to holders;
  • The expiration, termination, and substitution of a liquidity or credit-enhancement agreement; or
  • The trust being noncompliant with current financial-market regulations.

Notes are also subject to either whole or partial redemption due to the redemption of underlying securities. No tender-option-termination events exist in this transaction.

Rating Sensitivity

Changes to our rating on the notes could result from, among other things, changes to transaction terms or the guarantor or our ratings on the guarantor. The liquidity or credit agreements could expire prior to note maturity, and the guaranty supporting the agreements could terminate upon such expiration and fulfillment of obligations under the expired agreement. If liquidity or credit agreements have not been extended, or if alternate liquidity or credit agreements have not been delivered, we could withdraw the ratings on the notes.

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.

Primary Credit Analyst:Nicholas Breeding, Centennial (303) 721-4362;
nicholas.breeding@spglobal.com
Secondary Contact:James Ho, New York + 1 (212) 438 1306;
james.ho@spglobal.com

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