The Rating Outlook is Stable.
The non-housing tax allocation bonds are special obligations payable from non-housing Rialto merged project area gross tax increment revenues, less senior pass-throughs and county administrative fees, and a subordinate lien on housing set-aside revenues.
The tax allocation housing bonds are special obligations payable from the Rialto merged project area's housing set-aside revenues.
KEY RATING DRIVERS
GROWING PROJECT AREA AV: The project area's large and heavily developed commercial and industrial tax base has posted solid gains over the past two years, although fiscal year 2014 total assessed value (AV) remains slightly below its pre-recession peak. Fitch believes that current development activity will foster continued AV growth.
MODERATELY HIGH TAXPAYER CONCENTRATION: Top ten taxpayer concentration is moderately high at 27%; the top two taxpayers comprise over 16% of incremental value (IV) this year.
SOUND AV CUSHIONS: Non-housing and housing TABs are characterized by sound AV cushions (defined by the percentage of one-time AV decline that the tax base is able to withstand while maintaining 1x MADS coverage) of 36% and 29%, respectively.
BELOW-AVERAGE ECONOMIC CHARACTERISTICS: City per capita income levels are well below average and the unemployment rate is well above the state and national averages.
SATISFACTORY AB1X26 IMPLEMENTATION: The rating incorporates the expectation that the agency will continue its satisfactory implementation of AB1x26 (dissolution legislation) procedures.
COVERAGE CHANGES: Significant shifts in AV resulting in meaningful debt service coverage changes could prompt a rating action, either positive or negative.
The city 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 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.
SOUND COVERAGE AND AV CUSHION
Current MADS coverage on the non-housing TABs improved slightly to 2.05x from 1.83x. However, the AV cushion for the non-housing TABs remained unchanged at 36% upon consideration of surplus housing revenue. The current AV cushion on the housing TABs remains sound at 29%.
Tax increment revenues are sufficient to sustain other moderate stresses. MADS coverage for both housing and non-housing bonds stays above 1x under various stress scenarios, such as the loss of top 10 taxpayers and 100% of outstanding appeals loss.
LARGE, CONCENTRATED PROJECT AREA
The project area is very large and includes several large distribution centers including Target Corp., FedEx Corp., Staples Inc. and
The top 10 taxpayers comprise a moderately high 30% of the project area's total IV in fiscal year 2014 led by Prologis, Inc. at 9.5% and Target Corp. at 8.6%. As expected, Enertech, a former top taxpayer, ceased operations and its value was significantly reduced, resulting in a
AV growth is expected to remain steady with the ongoing construction of several major development projects. Current outstanding appeals are significantly reduced in fiscal year 2014 from fiscal year 2013, and the success rate of tax appeals remains low.
BELOW AVERAGE ECONOMIC INDICATORS
Per capita income for the city of
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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