The Rating Outlook is revised to Positive from Stable.
Per the bond indenture, the TABs are secured by net incremental property tax revenues. The revenues are net of the statutory 20% housing set-aside, county administrative fees, statutory pass-through obligations, and any property tax refunds resulting from successful appeals. The debt service reserve requirement is satisfied with an MBIA surety bond.
KEY RATING DRIVERS
SURPLUS HOUSING REVENUES BOOST COVERAGE: The upgrade reflects Fitch's refined analysis of residual housing revenues, which Fitch now considers to be available to pay non-housing TAB debt service. The availability of these revenues materially improves the TABs' debt service coverage (DSC).
POSITIVE OUTLOOK: The Positive Outlook reflects the strong AV growth prospects in the near term which would further increase DSC and the AV cushion.
SOLID AV CUSHION: Maximum annual debt service (MADS) coverage is sound at 2.71 times (x) and is highly resilient to potential AV declines.
ROBUST GROWTH IN TAX BASE; HIGH CONCENTRATION: The project's location in
SIGNIFICANT APPEALS ACTIVITY: Pending property tax appeals have declined from prior year levels. However, they remain substantial with requested AV reductions totaling
ABOVE AVERAGE ECONOMIC INDICATORS: The city of
CONTINUED AV GROWTH: Continued AV growth, if not offset by pending appeals, resulting in stronger DSC and AV cushion could result in an upgrade to 'AA-'.
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 passed since dissolution, during which the factors have benefited 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
Estimated coverage of maximum annual debt service (MADS) based on fiscal 2014 revenues (net of senior pass-throughs but including the residual housing set-aside revenues), is about 2.71x. If the 20% housing set-aside were maintained (though there are no housing TABs outstanding), MADS coverage from revenues net of the set-aside would be about 2.10x. Coverage stands up well to various Fitch-designed stress scenarios, including the loss of the top 10 taxpayers. The AV cushion (defined as the one-time reduction in fiscal 2015 AV required to bring MADS coverage to 1.0x) is high at about 72%. Meanwhile the county estimates fiscal 2015 AV growth at about 4.4%.
EXTENSIVE BUT CONCENTRATED TAX BASE
The project area tax base is extensive at
Taxpayer concentration is moderate (relative to other redevelopment project areas) with the top 10 taxpayers accounting for 19% and 23% of AV and IV, respectively. Cisco, the largest taxpayer, represents 6.7% of fiscal 2013 secured AV. The combined AV of properties under appeal totaled
VOLATILE AREA ECONOMY EXPERIENCING ROBUST GROWTH
The area's economic base focuses on the high tech sector, with many employers involved in computer-related manufacturing or software development. Employment levels reflect the inherent volatility of high tech industry falling nearly 5% in 2009 as a result of the deep recession.
Housing prices have more than fully recovered recessionary losses, with median home prices in
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, and Zillow.com.
--'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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