Oct. 1, 2020
U.S. Bank N.A. series FRA-1 custodial receipts
Underlying physical security:
Los Angeles County Housing Authority's series 2001D multifamily housing revenue refunding bonds (the Riverpark apartments project)
Mizuho Capital Markets LLC
Mizuho Bank Ltd.
JPMorgan Securities LLC
S&P Global Ratings assigned the above-mentioned ratings to the floater and residual receipts (collectively the receipts), reflecting its opinion of the likelihood the trust will have sufficient assets to pay timely interest and full principal when due on the receipts.
Trust assets include all distributions of principal; interest; and premiums, if any, from the underlying securities and the tender-option facility and guaranty, which are in place to support tender payments on the floaters.
The long-term component of our rating on the floaters reflects the ratings on the underlying securities and addresses full and timely interest-and-principal payments when receiptholders have not exercised the put option. The short-term component reflects the lower of our rating on the guarantor supporting the tender-option provider and the short-term equivalent of our rating on the underlying security. The short-term rating addresses full and timely interest-and-principal payments when receiptholders exercise the put option. The long-term rating on the residuals reflects the rating on the underlying securities.
Our ratings do not reflect our opinion of the likelihood receiptholders 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 believe the trust's assets support the full and timely payment of all obligations on the receipts, except in certain circumstances as described in the structural review section.
On the closing date, the trust acquired the underlying securities and concurrently entered into a tender-option agreement and related guaranty that supports tender payments on the floaters.
The trust has issued receipts in an amount equal to or less than the par amount of the underlying securities. The receipts will evidence a beneficial interest in trust assets, and they will be payable solely from payments received by the trust attributable to trust assets.
Interest payments from the underlying securities are passed through to floaterholders on either the 10th calendar day following the underlying physical security interest payment date--the payments of which are supported by Freddie Mac as the underlying credit-enhancement provider--or on the underlying physical security interest payment date if the full amount of interest due is paid by the underlying physical securities on such date.
The amount of interest paid to the floaterholders does not change for either payment date. Any amounts accrued between the underlying physical security interest payment date and the related floater interest payment date are not due and payable to floaterholders until the next succeeding floater interest payment date.
The floaters are a variable-rate issuance with a holder option to demand repayment before floaters 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 appropriate parties, such as the trustee or remarketing agent.
In the event a portion or all of the affected floaters cannot be remarketed successfully, the tender-option provider will loan funds equal to the entire purchase price of the affected floaters.
Residual receiptholders, by contrast, do not have a put option. However, part of the tender-option process requires an allocation of a portion of underlying securities to residual receiptholders (the reserved bonds). Upon a shortfall in sale proceeds, reserved bonds are distributed in kind to residual receiptholders.
Early call/redemption risk
Floater receipts are also subject to mandatory tender upon the occurrence of certain events detailed in trust documents. These events include:
- The expiration, termination, and substitution of the tender-option provider;
- A mode-rate conversion;
- The trust being noncompliant with current financial market regulations; or
- The whole or partial redemption of underlying securities.
In the case of any mandatory tender that requires trust termination, floater receipts are redeemed in full by the tender-option provider and cancelled with no further interest accrued following the related mandatory tender date. Payments to residualholders are made pro rata and pari passu with payments to the tender-option provider as a reimbursement for the amount of floater receipts redeemed. However, such payments to the tender-option provider and residualholders could be delayed past the scheduled mandatory tender date until the end of the 10-day notice period to Freddie Mac prior to any settlement of the underlying securities.
Tender-option termination risk
Upon the occurrence of a tender-option-termination event, the tender-option agreement will terminate without notice to floaterholders. These events, which we deem consistent with our published criteria, include:
- An act of bankruptcy by the underlying obligor and the principal credit source;
- The failure to pay principal and interest on the receipts by both the underlying obligor and principal credit source;
- The ratings on the underlying securities are lowered below 'BBB-' by the rating agencies, except in the case of prerefunded securities; and
- An event of taxability with respect to underlying securities.
In the event of any such tender-option-termination event, payments to receiptholders are distributed pro rata and pari passu between floater- and residualholders. However, such payments could be delayed past the scheduled tender-option-termination payment date until the end of the 10-day notice period to Freddie Mac prior to any settlement of underlying securities.
Changes to our rating on the receipts could result from, among other things, changes to transaction terms; our ratings on the underlying securities; or, in the case of floaters, changes to the tender-option provider or guarantor or our ratings on the tender-option provider or guarantor. The tender-option facility could expire prior to floater maturity. If the tender-option agreement has not been extended, or if an alternate tender-option agreement has not been delivered, we could withdraw the short-term component of the rating.
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;|
|Secondary Contact:||James Ho, New York + 1 (212) 438 1306;|
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