The Rating Outlook is Stable.
The bonds are secured by a senior lien on redevelopment project area tax increment revenues above the 1993 base year, collected within the sole project area. The security includes the 20% set-aside for low and moderate income housing.
KEY RATING DRIVERS
SOUND DEBT SERVICE COVERAGE: Fitch-estimated maximum annual debt service (MADS) coverage levels are sound. These levels hold up well under Fitch-designed stress scenarios.
HIGH TAX BASE CONCENTRATION: The relatively small tax base is very concentrated in terms of both the largest taxpayer and the top 10 payers. This risk is amplified by the high revenue volatility inherent in the low incremental value to base year ratio.
SOUND AV CUSHION: The TABs are characterized by a sound assessed value (AV) cushion (defined by the percentage of one-time AV decline that the tax base is able to withstand while maintaining 1x MADS coverage) of about 40.5%. AV posted solid gains in fiscal year 2014 as development picked up and the housing market continued to recover slowly.
LIMITED LOCAL ECONOMY: The city of
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 sustained debt service coverage changes could prompt a rating action, either positive or negative.
The city of
CONCENTRATED PROJECT AREA, RECOVERING TAX BASE
The project area is small at 605 acres but encompasses essentially all of the city's commercial area and a substantial portion of its residential area, totaling one-third of the city's AV. Commercial and industrial concerns each comprise around one-quarter of the tax base, with residential properties accounting for the remainder.
Taxpayer concentration is very high. The leading project area taxpayer, Saputo Inc. (a cheese processor) represents a sizable 23% of AV and a very high 44% of incremental value (IV). The top 10 taxpayers are also quite concentrated at 35% of AV and 67% of IV. The IV/base year value is a low 123%, contributing a high degree of revenue volatility.
The secured AV declined a notable 21.5% between fiscal 2008 and fiscal 2011, reflective of the stressed economy. AV has continued to grow since, posting a solid 5.2% gain from fiscal year 2013 to fiscal year 2014, but the tax base remains well below its peak value. Fitch believes the prospects for further AV growth are favorable given a mild pick-up in local development and continued housing market recovery.
SOUND COVERAGE AND AV CUSHION
Fiscal 2014 MADS coverage and AV cushion remain sound at 3.28x and 40.5%, respectively. Tax increment revenues are sufficient to sustain moderate stresses. MADS coverage stays above 1x under various stress scenarios, such as the loss of top 10 taxpayers and no AV growth.
Pledged tax increment revenues are derived from growth in the tax base above the fiscal 1993 level and include the required 20% set-aside for low and moderate income housing. Tax-sharing agreements provide for subordination of pass-through payments.
WEAK LOCAL ECONOMY
The city's narrow economy is focused on agriculture and food processing. Housing values were significantly negatively impacted during the recession, although slow recovery is evident.
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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