News Column

Fitch Affirms Orange Cove Redevelopment Agency, CA's TABs at 'BBB+'; Outlook Revised to Positive

May 30, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings takes the following rating action on Orange Cove Redevelopment Agency (RDA), California's tax allocation bonds (TABs):

--Approximately $5 million TABs, series 2004, affirmed at 'BBB+'.

The Rating Outlook is revised to Positive from Stable.

SECURITY

Per the bond indenture, the non-housing portion of the TABs is secured by a senior lien on tax increment revenue, net of housing set-aside and pass-through payments. The housing portion of the TABs is additionally secured by a 20% set-aside from gross tax increment. The bonds are also secured by a cash-funded debt service reserve fund.

IMPROVED DEBT SERVICE COVERAGE, AV CUSHION: The Positive Outlook 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, aided by recent assessed value (AV) stabilization and gains, has improved the bonds' debt service coverage and resilience to shifts in AV.

RECENT AV IMPROVEMENT: AV performance has been volatile in recent years after sizable gains in prior years. Fiscal 2013 AV was essentially flat (0.5% growth) after a 1.7% decline in fiscal 2012. Fiscal 2014 AV increased by 3.8% and continued moderate growth is expected in the near term.

WEAK ECONOMIC INDICATORS: The area economy is based on agriculture, particularly citrus production, with characteristically high levels of unemployment and low income and wealth indices.

CONCENTRATED ECONOMY/TAX BASE: The project area tax base displays moderate concentration among the top 10 taxpayers. In addition, four of the top 10 taxpayers are citrus food processors, reflecting the agricultural nature of the city and region.

SATISFACTORY AB 1X26 IMPLEMENTATION: The rating assumes continued satisfactory implementation of AB 1x26 (dissolution legislation) procedures and prioritization of debt service payments.

RATING SENSITIVITIES

SHIFTS IN REVENUE AVAILABLE FOR DEBT SERVICE: The rating is sensitive to shifts in pledged revenue, including as a result of changes in tax base or increased senior pass-through payments. Continued stabilization and improvement in AV levels yielding maintained stronger debt service coverage could result in an upgrade to the rating. Future significant increases in senior pass-through payments are not expected.

CREDIT PROFILE

Orange Cove lies approximately 30 miles southwest of Fresno, in the San Joaquin Valley, at the edge of California'sSierra Foothills. Population in 2012 totaled about 9,580.

The Orange Cove Redevelopment project area encompasses most of the city and portions of unincorporated Fresno County within the city's sphere of influence. The area includes three sub-project areas which together occupy approximately 1,029 acres. About one quarter of the city is zoned for single- and multi-family residential, while other areas are designated for commercial and industrial uses.

ANALYTICAL REFINEMENT CONSIDERS POSITIVE EFFECTS OF DISSOLUTION

On May 1, Fitch refined its California RDA analysis pertaining to the beneficial impact of dissolution legislation (AB 1X26). Fitch now considers TAB liens to be closed and surplus housing revenues to be available for non-housing TAB debt service.

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 which 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.

COVERAGE ENHANCED BY HOUSING REVENUES AND AV GAINS

Coverage of total maximum annual debt service (MADS) based on fiscal 2014 total revenues (net of senior pass-throughs but including the former housing set-aside revenues), is about 1.9x. If the 20% housing set-aside were maintained, MADS coverage on non-housing debt service from revenues net of the set-aside would be about 1.6x. Coverage stands up well to various Fitch-designed stress scenarios, including the loss of the top 10 taxpayers. An AV decline of about 38% would be required to reduce debt service coverage to 1.0x MADS.

MIXED TAX-BASE TRENDS; RECENT IMPROVEMENT

AV has fluctuated in recent years after sizable gains in prior years. Values were affected by one-time increases in fiscal 2011, related to temporary citrus packing-house facilities, which contributed to 1.9% growth, but fell off the tax rolls in fiscal 2012, leading to a 1.7%.decline. Fiscal 2013 AV was essentially flat (0.5% growth) followed by 3.8% growth in fiscal 2014 due to new housing developments. Continued moderate growth (1% to 2%) is projected in the near term as continued commercial and housing development is expected.

The tax base is moderately concentrated with the top 10 taxpayers accounting for 23% of AV and 29% of incremental AV (IV). Citrus packing houses constitute four of the top 10 taxpayers representing over 10% of AV. Appeals activity is not significant, based on a survey of the top 20 taxpayers which revealed no tax appeals filed by any of them over the past two years.

WEAK ECONOMIC PROFILE

The area economy is heavily dependent upon local citrus crops for employment including tree orchards and related packing houses. County unemployment rates are typically above state and national levels, but increased to over 16% in 2010 and 2011 as overall employment contracted. The economy appears to be stabilizing, with unemployment as of March 2014 at 13.8% vs. 14.5% a year prior and about 1.7% year-over-year growth in employment. The county's unemployment rate remains substantially higher than comparable state (8.4%) and national (6.8%) averages. Typical of agriculturally-based economies, wealth and income indices are significantly below state and national levels.

IMPLEMENTATION of AB 1X26

The city of Orange Cove has been recognized as the successor agency (SA) to the RDA. ROPS which include 2014 debt service have been approved by the oversight board and state. The SA has received approval for sufficient payments to cover 2014 debt service.

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=832378

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

Media Relations

Elizabeth Fogerty, New York, +1-212-908-0526

elizabeth.fogerty@fitchratings.com

or

Primary Analyst

Maria Coritsidis, +1-212-908-0514

Analytical Consultant

Fitch Ratings, Inc.

33 Whitehall St.

New York, NY 10004

or

Secondary Analyst

Scott Monroe, +1-415-732-5618

Director

or

Committee Chairperson

Arlene Bohner, +1-212-908-0554

Senior Director

Source: Fitch Ratings


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