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Custodial Receipts (Deutsche Bank), Custodial Receipts, Series 2022-XF1150 -- Moody's assigns enhanced Aa3 to Custodial Receipts (Deutsche Bank), Custodial Receipts, Series 2022-XF1150

·16 min read

Rating Action: Moody's assigns enhanced Aa3 to Custodial Receipts (Deutsche Bank), Custodial Receipts, Series 2022-XF1150Global Credit Research - 24 Aug 2022New York, August 24, 2022 -- Moody's Investors Service (Moody's) has assigned a Aa3 enhanced rating to Custodial Receipts (Deutsche Bank), Custodial Receipts, Series 2022-XF1150 (the Receipts) evidencing beneficial ownership of Maryland Health and Higher Educational Facilities Authority Revenue Bonds UPMC Issue, Series 2020B (the Bonds).RATINGS RATIONALEThe rating is based upon joint default analysis (JDA), which reflects Moody's approach to rating jointly supported transactions. The JDA rating is based on the long-term Counterparty Risk (CR) Assessment A2 (cr) of Deutsche Bank AG (the Bank) as provider of the standby Letter of Credit (LOC), the underlying rating of the Bonds, and the structure and legal protections of the transaction which provide for timely payment of debt service to the Custodial Receipts holders. Moody's underlying rating on the Bonds is A2.Since a payment default on the Custodial Receipts would occur only if both the Bank and the obligor of the Bonds default on bond principal and interest payment dates, Moody's has assigned the rating based upon the joint probability of default by both parties. In determining the joint probability of default, Moody's considers the level of default dependence between the support provider and the obligor. In this case, Moody's has determined that there is a low level of default dependence between the Bank and the obligor which results in a long-term JDA rating of Aa3 on the Receipts.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING• Moody's upgrades either the long-term CR Assessment of the Bank or the long-term rating of the Bonds.FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING• Moody's downgrades either the long-term CR Assessment of the Bank or the long-term rating of the Bonds.• Moody's determines that the default dependence between the obligor and the Bank increased.The Custodial Receipts pay interest on the same date on which interest is paid on the Bonds in an amount equal to the interest paid on the Bonds minus applicable fees, if any. The LOC covers amounts due on the Custodial Receipts on any bond payment date to the extent that such amounts are not received by the custodian from the Bonds. The LOC provider is also obligated to pay principal and interest due on the Custodial Receipts upon any optional redemption of the Custodial Receipts if there is any shortfall in the amount due on the Custodial Receipts from the proceeds of the sale of the Bonds.Payments to Custodial Receipt holders are first paid from the Bonds. In the event of a bankruptcy filing of the obligor of the Bonds, the custodian shall draw on the LOC for an amount equal to the amount of principal and/or interest paid by the obligor on the bonds during the 124 day period prior to such filing. Such amounts shall be held by the custodian in the preference account and shall be available for payment to the Custodial Receipt holders in the event any payments made to holders are subsequently avoided as preference payments.The amounts advanced to cover potential preference will be held until the Preference Period Expiration Date which shall be the earlier of (i) the date on which an order is received that payments to the Custodial Receipt holders must be returned as a result of the bankruptcy proceeding in which case the custodian shall pay over from the preference account to the Custodial Receipt holders an amount equal to any payments of principal and interest on the Bonds that have been returned; or (ii) the date on which notice has been received by the custodian that such bankruptcy proceeding is closed or dismissed and such dismissal or closure cannot be appealed in which case the funds in the preference account shall be returned to the Bank. In the event that the custodian receives an order that payments to the Custodial Receipt holders must be returned as a result of the bankruptcy proceeding and the funds deposited to the preference account are less than the amount required to be paid to the Custodial Receipt holders representing the payments of principal and interest on the Bonds that have been avoided as a pre-bankruptcy transfer, the custodian shall draw on the LOC for an amount equal to such difference (Preference Account Shortfall) for deposit to the preference account.In addition upon any optional redemption of the Custodial Receipts, redemption of the Bonds or withdrawal of the Bonds, the custodian is directed to draw on the LOC for an amount equal to the amount of principal and/or interest paid by the obligor on the Bonds during the 124 day period prior to such optional redemption, redemption or withdrawal. Such amounts shall be held by the Custodian in the holdback account and shall be available for payment to the Custodial Receipt holders in the event any payments made to holders are subsequently avoided as preference payments.The amounts held in the holdback account to cover potential preference will be held until the earlier of (i) the date on which an order is received that payments to the Custodial Receipt holders must be returned as a result of the bankruptcy proceeding in which case the custodian shall transfer from the holdback account to the preference account for payment to the Custodial Receipt holders an amount equal to amount returned; or (ii) the first business day that is at least 125 days after such Custody Receipt optional redemption date, bond redemption date or bond withdrawal date at which time the custodian shall return funds held in the holdback account to the Bank.The LOC is sized for the full principal amount of the Bonds plus 309 days of interest at the Bond rate, which will provide sufficient principal and interest coverage for the Custodial Receipts Requests for funds made by 9:45 a.m. (New York City time) by the custodian under the LOC on any business day shall be paid by the LOC provider by 12:30 p.m. (New York City time) on such business day.The Final Expiration Date of the LOC is the earlier of: (i) the fifth business day after the Preference Period Expiration Date; or (ii) the date that is 125 days following the Optional Redemption Date. The scheduled expiration date of the LOC is September 1, 2023, provided the obligation of the LOC provider to fund any Preference Account Shortfall shall extend to the Final Expiration Date. In addition, the scheduled expiration date shall be automatically extended for a period of 364 days from its current date in the event that the optional redemption scheduled for the fifth business day prior to the scheduled expiration date does not take place.Substitution of the LOC is permitted at any time provided that the depositor provides the custodian with written notice from each rating agency then rating the Custodial Receipts that such substitute credit enhancement shall not result in the reduction or withdrawal of the then current ratings on the Custodial Receipts.The Custodial Receipts are subject to optional redemption upon each of the following: (i) the fifth business day prior to the scheduled expiration date of the LOC; (ii) the fifth business day following payment of any principal or interest shortfall by the LOC provider; and (iii) the fifth business day after the business day on which the custodian obtains knowledge of a bond issuer act of bankruptcy.On any optional redemption date, if the Bank fails to pay the optional redemption then such optional redemption shall be canceled and the LOC shall remain in effect. The Custodial Receipts will remain outstanding supported by the underlying Bonds and the LOC. The Custodial Receipts are subject to redemption upon redemption of the Bonds.The principal methodology used in this rating was Tender Option Bonds and Related Instruments published in February 2018 and available at https://ratings.moodys.com/api/rmc-documents/63933. An additional methodology used in this rating was Guarantees, Letters of Credit and Other Forms of Credit Substitution Methodology published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/386295. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Randy Matlosz Analyst Public Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Joann Hempel VP - Senior Credit Officer Public Finance Group Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 /td> © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. 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