The Rating Outlook is revised to Stable from Negative.
In addition, Fitch affirms the 'A' rating on the following senior TABs of the RDA:
The Rating outlook on the series 2003 TABs remains Stable.
Per the indenture, the senior TABs are secured by tax increment revenues generated within the project area, net of administration fees, pass-through amounts, and housing set-aside funds. Part of the senior TABs was used for low/moderate income housing purposes and can be repaid from the housing set-aside revenues.
The subordinate bonds are secured by net tax increment after debt service payments on the agency's senior 2003 TABs.
Each series of TABs has its own cash-funded debt service reserve fund, with the standard three-pronged requirements. As of
KEY RATING DRIVERS
SURPLUS HOUSING REVENUES BOOST COVERAGE: The upgrade reflects Fitch's refined analysis of surplus housing revenues, which Fitch now considers to be available to pay non-housing TAB debt service. The availability of these revenues materially improved the bonds' debt service coverage.
AV STABILIZATION: The Outlook revision to Stable reflects growth in assessed values (AV) in fiscal 2014, following four years of AV contraction. AV performance is expected to be modestly positive over the near term as home prices in the area are increasing from previously depressed levels.
SOLID SENIOR LIEN COVERAGE: The 'A' rating on the senior lien TABs reflects solid maximum annual debt service (MADS) coverage and significant resilience to potential AV declines.
MIXED ECONOMIC INDICATORS: The project area tax base is moderately concentrated and historically volatile. However, it benefits from the city's underlying economy which features above-average income levels and favorable unemployment rates.
SATISFACTORY AB1X26 IMPLEMENTATION: The rating incorporates the expectation that the agency will continue its satisfactory implementation of AB1x26 (dissolution legislation) procedures and prioritize the rated debt service payments.
TAX-BASE CONTRACTION: An unexpected reversal of the recent AV gains would likely result in negative rating action.
The city of
ANALYTICAL REFINEMENT CONSIDERS POSITIVE EFFECTS OF DISSOLUTION
IMPROVED SUB COVERAGE, STILL VULNERABLE
The subordinate 2008 TABs coverage increases materially after the inclusion of surplus housing revenues, as Fitch now views these to be available for non-housing debt. Annual debt service for 2014 for the 2008 series, including surplus housing revenues, is 1.17x, a significant uplift from the weak 0.97x excluding these revenues. MADS also improves from 0.93x to 1.12x when surplus housing revenues are included; under base case projections, the debt service reserve fund will no longer be drawn upon. Fitch cautions that MADS is still vulnerable to AV changes. A 7.5% decline in AV would result in a slightly below 1x coverage for MADS, and a repeat of the AV declines experienced in fiscals 2009 and 2010 would result in a depletion of the debt service reserve fund within three years.
SOLID SENIOR COVERAGE
Series 2003 senior TABs benefit from strong coverage levels with or without surplus housing revenues. Around 15% of the senior lien debt service is eligible to be paid from the 20% housing set-aside funds, as part of the original bond proceeds was used for low/moderate income housing purposes. MADS coverage by 2014 revenues on this housing portion of the senior lien TABs is high at over 5.3x due to the limited amount of senior debt. The non-housing portion of the senior TABs also enjoys a solid 4.4x MADS, up from 3.6x without surplus housing revenues. Both are resilient to various AV stresses, and can still achieve over 1x MADS if AV falls by 53% (versus 52% excluding surplus housing revenues), a level that Fitch considers very resilient.
IMPROVED AV, MODERATE CONCENTRATION
The recent stabilization of the historically volatile tax base is expected to continue over the near term. Project area AV exhibited large variations in recent years, with double-digit annual growth rates in pre-recession years and a large one-year decline of 21% in fiscal 2010 followed by more moderate declines in 2011, 2012 and 2013. By fiscal 2013, AV was 29% below peak. Fiscal 2014 AV increased for the first time since 2009 with a gain of 3.6%. Fitch expects additional growth over the next few years based on positive changes in the local real estate market, as shown by the 25% year-over-year increase in the Zillow housing index for the city. The project area real estate market performance is likely to be weaker than the city's, but is expected to be modestly positive.
The rating is affected by the tax base's concentration. While the top 10 property taxpayers account for a moderate 18% AV, or 25% of incremental values (IV), already low coverage levels on the subordinate bonds would likely fall below 1.0x with the loss of any of the top 10 taxpayers.
BEDROOM COMMUNITY WITH MIXED ECONOMIC CHARACTERISTICS
The city, in north-eastern
Other economic indicators are above average. The city's unemployment has consistently been low. At 4.6% in
AB 1X26 IMPLEMENTATION
The SA has completed six ROPS processes, and continues to put cash reserves on its July to December ROPS for the next September principal repayments. Both the SA and the
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope,
--'Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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