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Fitch Affirms Rohnert Park CDC, CA's TABs at 'A'; Outlook Stable

February 18, 2014

Fitch Ratings has affirmed the following Rohnert Park Community Development Commission, California tax allocation bonds (TABs):

--$7.5 million series 1999 at 'A'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by tax increment revenues generated within the project area, net of administrative fees, pass-through amounts, and housing set-aside.

KEY RATING DRIVERS

SOUND COVERAGE: Fiscal 2014 maximum annual debt service (MADS) coverage on non-housing bonds is expected to be over 2 times (x) and holds up sufficiently under various Fitch stress tests. Housing revenues are not included in the coverage calculation for non- housing bonds, according to the original indenture.

RESILIENT ECONOMY; SOME TAXPAYER CONCENTRATION: Project area assessed value (AV) experienced relatively minor declines during the recession, and has shown modest recovery in 2014. The project area is somewhat concentrated in its top 10 property taxpayers.

SATISFACTORY AB1X26 IMPLEMENTATION: The rating incorporates the expectation that the agency will continue its satisfactory implementation of AB1x26 (dissolution legislation) procedures.

RATING SENSITIVITIES

STABLE OUTLOOK: The rating is sensitive to shifts in fundamental credit characteristics including the successor agency's tax base performance and the continued orderly processing of payments post- dissolution. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The Rohnert Park redevelopment plan (the project area) encompasses a total of roughly 1,700 acres of residential, commercial, and industrial properties in the city of Rohnert Park (the city), which is about 8 miles south of Santa Rosa, and 48 miles north of San Francisco. The project area is approximately 40 percent of the city, mostly in the northwest portion of the city extending on both sides of Highway 101.

STABLE ECONOMY

The city's economy is led by tourism due to proximity to Sonoma wineries, redwoods, and golf courses. It is also home to Sonoma State University, with over 9,000 students and 1,200 employees, making it the city's largest employer. Graton Casino, which opened in November 2013 outside of, but adjacent to the city also reportedly draws large crowds.

The city's median household income levels are on par with state and national averages, at 92 percent and 108 percent respectively. Educational attainment rates are roughly comparable as well. The city's unemployment rate (5.9 percent in November 2013) has been lower than the state's (8.3 percent) or the nation's (6.6 percent), and employment has been expanding since 2011. The real estate market is recovering from its 2012 low. House price index has shown a 25 percent increase year-over-year according to Zillow, but is still significantly below its 2006 peak.

RECOVERING TAX BASE

Project area AV grew in fiscal 2014 by 3.5 percent for the first time after four years of modest declines. The cumulative peak to trough decline was 8.3 percent from 2009 to 2013. Fitch expects AV growth to continue as the real estate market recovers. Approximately 35 percent of the land in the project area is for residential use, where house price increases will continue to be reflected in AV.

The major taxpayers within the project area have remained stable both in terms of composition and AV values. The project area is somewhat concentrated in the top 10 taxpayers which account for 17 percent of total project area AV, or 23 percent of incremental value (IV) in fiscal 2014. However, there is no significant concentration in industries or land use. Previously outstanding AV appeals among the top 10 seem to have largely been resolved. As of fiscal 2014, value at risk due to appeals is $1.4 million, equivalent to less than 1 percent of project area AV.

SOUND COVERAGE

Fiscal 2014 annual debt service (ADS) coverage is 2.4x by Fitch estimate, with MADS at 2.1x. MADS coverage remains sufficient under a few stress scenarios, including the loss of the top 10 taxpayers, continued AV declines of 5 percent a year for another four years, and the loss of all outstanding appeal values. Specifically, AV would have to decline by a high 37 percent in one year to reach 1x MADS as a result of the relatively mature nature of the project area. The IV to base year value is moderate at over 2.5x, indicating that volatility in AV does not have an exaggerated impact on IV.

AB 1x26 IMPLEMENTATION

The city of Rohnert Park as the successor agency has completed five Recognized Obligation Payment Schedule (ROPS) processes without the need for temporary cash loans to fulfill its debt service requirement, and has been segregating housing and non-housing revenues. After the finding of completion letter was issued, the successor agency submitted its long-range property management plan, which is currently under review by the Department of Finance. Certain properties may be disposed of and part of the proceeds could be available for bond repayment, but Fitch does not expect any material impact to MADS.

In addition, a previous $2.1 million loan from the city to the agency has been recognized as an enforceable obligation. Loan repayments are subordinate to bond payments, and Fitch does not view this obligation as having a material impact on rated bonds.

More information:

fitchratings.com

fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=686015

fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=685314

fitchratings.com/gws/en/disclosure/solicitation?pr_id=819839

fitchratings.com/understandingcreditratings

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