News Column

Fitch Affirms Alameda PFA, CA's 2010A Rev Bonds at 'A-' & 2010B Rev Bonds at 'BBB'; Outlook Stable

May 23, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following ratings on Alameda Public Financing Authority local agency refunding revenue bonds - Harbor Bay Community Facilities District No. 1 (CFD) and Marina Village Reassessment District No. 10-1 (AD):

--$8.8 million refunding revenue bonds series 2010A at 'A-';

--$4.2 million refunding revenue bonds series 2010B at 'BBB'.

The Rating Outlook is Stable.

SECURITY

The 2010A bonds are secured by a senior lien on special taxes from the CFD and assessments from the AD. The 2010B bonds are secured by a subordinate lien on these revenues.

KEY RATING DRIVERS

SOLID SENIOR DEBT SERVICE COVERAGE: The series 2010A bonds benefit from the stability of the underlying tax base, a closed lien, low taxpayer concentration, solid debt service coverage, short amortization, and special taxes on a parity lien with ad valorem property taxes. Offsets to these strengths include the CFD's small size and escalating debt service.

SUBORDINATE LIEN, WEAK DEBT SERVICE COVERAGE: The series 2010B bonds mature in September 2014, and sufficient funds are currently held by the trustee for the final debt service payment. The 'BBB' rating reflects the subordinate lien on revenues, weak debt service coverage, and very high AD taxpayer concentration, offset by the stability of the underlying tax base, a closed lien, a reserve for tax delinquencies, and assessments on a parity lien with ad valorem property taxes.

STABLE LOCAL ECONOMY: The city of Alameda's (the city) economy benefits from its location within the large and diverse San Francisco Bay Area employment market. The city's economic indicators are solid, including below average unemployment, above average wealth and income indicators and stable assessed valuation (AV) levels.

RATING SENSITIVITIES

The rating is sensitive to shifts in revenue collections and delinquency rates and continued availability of reserve funds in the event of any shortfalls. The Stable Outlook reflects Fitch's expectation that given the maturity of the underlying tax bases, historically low delinquency rates, and significant reserve funds, such shifts are unlikely.

CREDIT PROFILE

The city of Alameda, CA, population 75,641 in 2012, is located just south of Oakland and across the bay from San Francisco. The districts are mature developments with excellent access to the greater regional economy.

The CFD consists of 630 single-family homes on 123 acres of land located in the mixed-use community of Harbor Bay Isle on San Francisco Bay across from downtown Alameda. The AD includes 206 acres of commercial and industrial properties made up of 71 parcels in the northern portion of Alameda, south of Oakland Inner Harbor and east of two tunnels that connect the city to Oakland.

The Alameda Public Financing Authority (PFA) is a joint exercise of powers agency formed by the city of Alameda and its Community Improvement Commission. The PFA serves as a municipal financing vehicle and has supported multiple capital improvement projects for the city.

MATURE, STABLE ECONOMIC BASE

Alameda unemployment levels have historically been lower than state and national averages. The city's March 2014 figure (4.5%) remains below comparable state (8.4%) and national (6.8%) figures. Income and wealth levels have also historically exceeded state and national averages. The districts' assessed valuations have held steady in recent years, reflecting the largely built out nature of the area. Stronger CFD assessed value growth in 2013 (4.2%) reflected the addition of a new office building in the district.

SOUND ASSESSMENT STRUCTURE

Proceeds of the series 2010A and 2010B bonds were used to purchase local obligations of the CFD and AD, respectively. The repayment of the local obligations relies upon special taxes and assessments on district property owners.

The CFD tax is levied at a rate intended to achieve 1.0 times (x) coverage of its obligation to the authority, which in turn provides the same coverage for the series 2010A bonds. However, the CFD has ample flexibility to increase its tax rate. If levied at the maximum rate, the resulting revenues would provide about 1.7x coverage of its annual payments to the PFA. The CFD neither levies nor is obligated to levy special taxes in excess of its obligation to the PFA. As a result, there are no surplus CFD revenues to provide enhancement to the subordinate 2010B series.

The CFD levies special taxes on all residential properties through a special tax formula. The formula is based predominantly on square footage and allows for an automatic annual 2% rate escalator. For fiscal years 2011 through 2013 the special tax rate was levied at 61% of the maximum rate.

The AD's assessment revenues are pledged first towards the senior 2010A bonds and on a subordinate basis to the 2010B bonds. The AD assessment is limited to 1.1x of debt service on the series 2010B bonds.

LOW CFD DELINQUENCIES; RAPID AMORTIZATION

Because the CFD tax base consists solely of single-family homes, concentration among the top 10 taxpayers is low (about 3% of the levy). The CFD additionally benefits from a high value-to-lien ratio (45:1 in 2013) and a history of low delinquencies. For fiscal years 1997-2008, the delinquency rate was zero, but has risen to over subsequent years to a still modest 2.03% in 2013. Delinquencies could rise significantly before debt service coverage levels would be materially affected. CFD assessed valuation levels have fluctuated modestly in recent years; however, tax rates are levied based on square footage, not valuation levels.

Overall CFD debt levels are midrange at 4.6% of AV. Amortization is rapid with 100% of principal maturing within 10 years (2019) and the closed lien prevents the issuance of parity debt. The CFD debt service reserve fund is equal to 10% of par outstanding for the 2010A bonds.

HIGHLY CONCENTRATED AD TAX BASE; BONDS MATURE IN 2014

The AD district is nearly fully developed, with commercial and industrial parcels providing 96% of assessment liens. Taxpayer concentration is extremely high, with the top taxpayer, Legacy Partners I Alameda LLC, accounting for over 60% of total assessment revenues. The top 10 taxpayers make up over 90% of the tax base. However, the value-to-lien ratio for the district is a high 73:1 in 2013, and delinquencies historically have been moderate (6.8% in 2013) with no history of foreclosure proceedings.

Debt service is structured so that local assessments will cover subordinate series 2010B debt service a low 1.10x, assuming no delinquencies. The risks related to an inflexible assessment levy, low debt service coverage, and high taxpayer concentration are offset by a $2.2 million delinquency maintenance fund, sufficient to pay one year of debt service. The 2010B bonds mature in September 2014 and sufficient funds are currently held by the trustee, derived from the delinquency maintenance fund, for the final debt service payment. The closed lien prevents the district from issuing parity debt.

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, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

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

U.S. Local Government Tax-Supported Rating Criteria

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=831464

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Maria Coritsidis

Analytic Consultant

Fitch Ratings, Inc.

33 Whitehall St.

New York, NY 10004

or

Secondary Analyst

Bernhard Fischer, +1 212-908-9167

Director

or

Committee Chairperson

Laura Porter, +1 212-908-0575

Managing Director

or

Media Relations:

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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