The Rating Outlook is Stable.
The bonds are secured by a senior lien on all tax increment revenues of the Market Street redevelopment project area net of any required set-aside and pass-through payments.
KEY RATING DRIVERS
SOUND AV CUSHION: Maximum annual debt service (MADS) coverage from pledged revenues is a sound 3.8x and is moderately resilient to potential AV declines and weak collections. The impact of such declines on pledged revenue would be magnified given the low ratio of incremental to base year value.
RECOVERING TAX BASE: The project area tax base benefits from recent recoveries and minimal appeals, but is weighed down by high concentration and high incremental value (IV) volatility.
BELOW AVERAGE ECONOMIC INDICATORS: The city of
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.
AV STABILIZATION: The rating is sensitive primarily to shifts in AV and concentration.
The city of
The incremental property tax revenue collections are not part of the county's guarantee of property taxes (teeter plan). Recent collection rates have been strong, with delinquency rates dropping to around 2% for all project areas. However, Fitch conservatively uses the highest historical delinquency rates (around 4%) in its coverage calculations.
PROJECT AREA WITH CONCENTRATION AND INHERENT VOLATILITY
Tax base growth since incorporation has been relatively limited despite the long history. Incremental value (IV) (
The tax base is highly concentrated in the top 10 (41% of IV), due to a single significant taxpayer, MPT of
RECENT AV RECOVERY, MINIMAL APPEALS
Project area AV rebounded for the first time since the recession by 2.4% in fiscal 2014. Continued AV stabilization is likely. The project area AV trend generally follows the city's and commercial and residential real estate market recoveries have been happening throughout the city. Zillow indicates a year-over-year house price increase of 13% in the city, after reaching the trough in 2012.
Current outstanding appeals have minimal value at risk of
ANALYTICAL REFINEMENT CONSIDERS POSITIVE EFFECTS OF DISSOLUTION
Fitch formerly excluded positive dissolution factors from consideration, reflecting a conservative approach to a dissolution environment marked by legislative, administrative, and judicial uncertainty. Two-and-a-half years and six recognized obligation payments schedule (ROPS) cycles have passed since dissolution. During that time, the factors have benefitted TAB credit quality with no successful legal challenges to date. Although uncertainties remain, Fitch views the continued presence of closed TAB liens and surplus housing revenue availability as more likely than not to remain a feature of California TABs.
ENHANCED DEBT SERVICE COVERAGE DOES NOT AFFECT THE RATING
Current MADS improved to 3.7x from 2.3x after including 20% housing set-aside revenues. Similarly, AV cushion (defined by the percentage of one-time AV decline that the tax base is able to withstand while maintaining 1x MADS) increased to 39% from 31% as a result. Although these changes are notable, they are not sufficient to offset other risks, and overall credit characteristics remain comparable to other similar 'A-' credits.
Tax increment revenues are sufficient to sustain other moderate stresses. MADS stay well above 1x under various stress scenarios, such as the loss of top 10 taxpayers, 100% of outstanding appeals loss, increased delinquency rates, and a repeat of the AV declines experienced in fiscal years 2011 and 2012.
AB 1X26 IMPLEMENTATION
The SA recently completed the July to
The SA has received the Finding of Completion Letter from the DOF, signaling that it does not owe any amount following the two county due diligence reviews or the true-up process, and is ready to move to the next steps in the dissolution process, such as selling former RDA properties.
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,
--'Tax-Supported 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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