News Column

Fitch Rates Santa Clarita Community College Dist., CA's $25MM GOs 'AA'; Outlook Stable

August 25, 2014

SAN FRANCISCO--(BUSINESS WIRE)-- Fitch Ratings assigns the following rating for the Santa Clarita Community College District, California (the district):

--$25 million general obligation (GO) bonds, election of 2006, series 2014 'AA'.

In addition, Fitch affirms the following ratings:

--$189.6 million GO bonds at 'AA';

--$19.8 million certificates of participation (COPs) at 'AA-'.

The Rating Outlook is Stable.

The bonds are expected to sell the week of September 8th and will fund various capital projects.

SECURITY

The GO bonds are general obligations of the district, payable solely from the proceeds of ad valorem taxes, without limitation as to rate or amount.

The COPS are limited obligations secured by lease rental payments for the use of certain district properties, subject to abatement. They are additionally supported by the district's covenant to budget and appropriate lease payments.

KEY RATING DRIVERS

IMPROVED REVENUE PROSPECTS: The district continues to benefit from a recovering economy and improved state finances.

OPERATING BALANCE RESTORED: The district finished the 2013 fiscal year with a small surplus and preliminary results for fiscal 2014 reflect continued positive operating results. Fund balances are adequate and remain well above state-mandated levels.

STRONG ECONOMIC BASE: The district benefits from its access to and participation in the broad Los Angeles economy and is well positioned to capture ongoing regional growth. Local employment and housing markets have seen steady improvements over the past several years and wealth and income levels for the district remain above average.

AFFORDABLE DEBT; SLOW AMORTIZATION: Overlapping debt levels are moderate, but amortization is slow due to the district's extensive use of long-dated capital appreciation bonds (CABs).

RATING SENSITIVITIES

MAINTENANCE OF OPERATING BALANCE: Management's inability to maintain operating balance would create downward pressure on the rating. Upward rating movement is somewhat limited by the district's reliance on state funding and would likely require sustained improvement in reserve levels to offset historical revenue volatility.

CREDIT PROFILE

The district is located in northern Los Angeles County along Interstate 5, approximately 35 miles from downtown Los Angeles, and includes the city of Santa Clarita and adjacent unincorporated areas.

IMPROVED REVENUE PROSPECTS

The district relies heavily on state funding for operations and has benefited from recent improvements in the state's economy and revenue collections. Unrestricted general fund revenues for the district rose by 4.3% in fiscal 2013 following a 10.8% decline in 2012. Management reports further gains for fiscals 2014 and 2015 based on recent state funding increases.

OPERATING BALANCE RESTORED

Rising revenues have helped the district to restore operating balance following several years of funding reductions. The district finished fiscal 2013 with a small general fund operating surplus following a deficit in 2012 and reports continued balanced operations for fiscal 2014. Fitch expects that budgeted increases in state revenues will help extend this positive trend for fiscal 2015.

Cash balances have also increased with the general improvement in the district's financial position. The district issued $8 million in cash flow notes in 2013 in response to state revenue deferrals but has no plans for further short-term borrowing. Fund balance rose to 11.8% of general fund spending in fiscal 2013, well above the 5% state-mandated minimum.

STRONG ECONOMIC BASE

The tax base of the district is largely residential and has withstood the recent housing crisis better than many outlying communities in southern California. Assessed valuation (AV) for the district fell by 8% between 2009 and 2013 but returned to growth in 2014 with a 2.2% increase. A further increase of 7.7% in 2015 will raise AV above its pre-recession peak. Year-over-year home value increases of 19% through June 2014 for the city of Santa Clarita, as reported by Zillow, point to further gains for fiscal 2016 as the residential real estate market continues to improve. Several large-scale residential developments underway or in the planning stages are also expected to boost the district's population and AV over the next several years.

Wealth and income indicators for the city of Santa Clarita are well above county, state, and national averages, while poverty levels are much lower. Unemployment rates have historically compared favorably to state and national averages and peaked at a relatively low 7.8% in 2010. As of June 2014 the unemployment rate for the city of Santa Clarita was 5.0%, as compared to 7.3% and 6.3%, respectively, for the state and nation. Employment growth has also been robust with 47 consecutive months of year-over-year gains and a 2.4% increase over the last 12 months alone, although employment levels remain below pre-recession peaks.

MANAGEABLE DEBT LEVELS; SLOW AMORTIZATION

Overlapping debt levels for the district are moderate at 3.6% of AV, but amortization is very slow due to the district's extensive use of long-dated CABs. Approximately 19.9% of outstanding principal and interest accreted through maturity is scheduled for repayment within the next 10 years. The district will retain $20 million in GO authorization following this issuance but has no immediate plans for new borrowing.

The district is a participant in two state-sponsored defined benefit pension plans and faces ongoing increases in contribution rates to address current low funding levels. The district fully funds its annual required contribution for other post-employment benefits (OPEBs) and maintains a revocable trust equal to approximately one-half of its $7.7 million unfunded liability. Carrying costs for long-term obligations, including debt service and contributions towards retirement benefits, were affordable at approximately 15% of 2013 operating expenditures, but could be pressured by rising pension expenses over the next several years.

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.

Applicable Criteria and Related Research:

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

Applicable Criteria and Related Research:

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=857014

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

Stephen Walsh

Director

+1-415-732-7573

Fitch Ratings, Inc.

650 California Street, 4th Floor

San Francisco, CA 94108

or

Secondary Analyst

Scott Monroe

Director

+1-415-732-5618

or

Committee Chairperson

Arlene Bohner

Senior Director

+1-212-908-0554

or

Media Relations:

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

Email: elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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