Profile

Closing date:

Aug. 19, 2021

Series:

DBE-8901

Underlying security:

Nuveen Municipal High-Income Opportunity Fund adjustable rate munifund term preferred shares series 2031

Tender-option provider:

Deutsche Bank AG, New York branch

Remarketing agent:

Deutsche Bank Securities Inc.

Rationale

S&P Global Ratings assigned the above-mentioned ratings to the SPEARs and custody receipts (collectively the receipts), reflecting its opinion of the likelihood the trust, as custody receiptholder, 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 custody receipt and the tender-option provider, which is in place to support tender payments on SPEARs.

The rating on the custody receipt reflects the lower of our long-term foreign currency rating on the credit provider's parent, Deutsche Bank AG, and the U.S., the jurisdiction where the credit provider, Deutsche Bank AG, New York branch, operate. The rating on the custody receipt addresses full and timely interest-and-principal payments.

The long-term component of our rating on the SPEARs reflects the ratings on the custody receipt 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 short-term foreign currency rating on the tender-option provider's parent, Deutsche Bank AG, and the U.S., the jurisdiction where the tender option provider, Deutsche Bank AG, New York branch, operates. The short-term rating addresses full and timely interest-and-principal payments when receiptholders exercise the put option.

The 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 think 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.

Environmental, social, and governance (ESG) factors

Our ratings on these issues are linked to the credit provider and tender-option provider (collectively the support providers). ESG factors that have an effect on the ratings on these supporting entities could also have an effect on the ratings on these receipts. Our assessment of the creditworthiness of the support providers incorporates any material ESG credit factors. In our view, exposure to ESG factors in this transaction is limited to the factors related to support providers. (For further information on the ESG considerations relevant for bank ratings, refer to the U.S. and Canadian, EMEA, Asia-Pacific, and Latin American bank ESG industry report cards https://www.spglobal.com/ratings/en/products-benefits/products/esg-in-credit-ratings#sector-report-cards.)

Structural Review

On the closing date, the custodian acquired the underlying securities and concurrently entered into a credit-enhancement agreement in the form of a standby letter of credit that supports all distributions and payments on the underlying securities. The credit enhancement also provides available funds for preference risk should payments from the underlying securities become recaptured due to an underlying security issuer's bankruptcy. Unique risks are associated with using preferred shares as an underlying security.

The custodian has issued a custody receipt in an amount equal to or less than the par amount of the underlying securities. The custody receipt evidences a beneficial interest in the underlying securities and the right to receive amounts available under the credit enhancement.

Concurrently, the trust acquired the custody receipt and has designated a tender-option provider to support tender payments on SPEARs.

The trust has issued SPEARs and residuals in an amount equal to or less than the par amount of the custodial receipt. SPEARs 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 SPEARs receipts are payable by such SPEARs receiptholders.

We think market value risk associated with the underlying securities is minimal because SPEARs holders are promised the full principal-and-interest amount upon redemption or tender events.

Put-option risks

SPEARs are a variable-rate issuance with a holder option to demand repayment before SPEARs 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 SPEARs cannot be remarketed successfully, the tender-option provider will loan funds equal to the entire purchase price of the affected SPEARs.

Underlying security risks

SPEARs receipts are subject to unique risks related to the use of preferred shares as underlying securities:

• The potential for the deferral of underlying security payments;
• The potential for a dividend of zero on any related payment date;
• The shares, unlike debt, do not have a stated par amount;
• A lack of a set maturity date, on which principal-and-interest payments are required to be paid to all receiptholders; and
• The potential for market value risk.

These risks are mitigated by:

• The credit enhancement covers full and timely principal-and-interest payments promised to SPEARs holders, which does not change regardless of underlying security payment deferrals;
• The promise of a minimum interest rate during each accrual period;
• The capping of the promise to SPEARs holders at a maximum rate, covered in full by the credit enhancement;
• The fixed SPEARs interest payment dates are not delayed, regardless of underlying security payment deferrals;
• A final redemption or maturity date, upon which the underlying securities, supported by the credit enhancement, pay the stated amount of principal assigned at issuance; and
• SPEARs holders could have exposure to market value risk only in the event of the support provider's failure to pay--SPEARS holders may then hold or sell such distributed portion of underlying securities.

Early call/redemption risk

SPEARs 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 a tender-option provider;
• An act of bankruptcy by the tender-option provider or credit provider, or failure to make payments by the tender-option provider or credit provider;
• A mode-rate conversion; or
• The trust being noncompliant with current financial market regulations.

Receipts are also subject to either whole or partial redemption due to the redemption of the underlying securities. The underlying securities have a term redemption date upon which all outstanding receipts will be redeemed. Upon such redemption, the outstanding receipts are paid full principal and accrued interest.

Liquidity termination risk

No tender-option termination events exist in this transaction.

Rating Sensitivity

Changes to our ratings on the SPEARs and custodial receipts could result from, among other things, changes to transaction terms; the credit provider or our ratings on the credit provider; or, in the case of SPEARs, the tender-option provider or our ratings on the tender-option provider. The tender-option provider or credit enhancement could expire prior to SPEARs or custody receipt maturity. If the tender-option provider or credit enhancement has not been extended, or if an alternate tender-option provider or credit enhancement has not been delivered, we could withdraw the ratings on the receipts.

Related Research

Through The ESG Lens 2.0: A Deeper Dive Into U.S. Public Finance Credit Factors, April 28, 2020