Fitch Affirms Alameda Public Finance Auth, California 2010 Rev Bonds at 'A-' & 'BBB'; Outlook Stable

SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings takes the following ratings actions in the course of routine surveillance:

--$10.7 million refunding revenue bonds series 2010A affirmed at 'A-';

--$8.0 million refunding revenue bonds series 2010B affirmed at 'BBB'.

The Rating Outlook is Stable.

KEY RATING DRIVERS

--The ratings for the series 2010A and subordinate series 2010B bonds are based on the credit characteristics of the Alameda Community Facilities District No.1 (the CFD) and the Alameda Reassessment District No. 10-1 (the AD).

--The series 2010A bonds' strengths include the economic resilience and maturity of the underlying tax base, a closed lien, low taxpayer concentration among the top payers, solid debt service coverage, short amortization, and special taxes on a parity lien with ad valorem property taxes.

--Offsetting these strengths are the CFD's small size, escalating debt service, and a high overall tax burden.

--The subordinate series 2010B bonds' strengths include the economic resilience and maturity of the underlying tax base, a closed lien, an exceptionally large reserve for tax delinquencies, rapid amortization, and assessments on a parity lien with ad valorem property taxes.

--Offsetting these strengths are weak AD debt service coverage, a liberal foreclosure covenant, and very high taxpayer concentration levels.

--The city of Alameda's (the city) economy benefits from its location within the large and diverse San Francisco Bay Area employment market.

--The city's maturity and solid economic characteristics have resulted in a stable housing market, relatively solid unemployment and income rates, and stable assessed valuation (AV) levels.

SECURITY

The 2010A bonds are secured by a senior lien on special taxes from the CFD and assessments from the AD. The 2010B bonds are secured by a subordinate lien on the AD assessments only.

CREDIT PROFILE

The Alameda Public Financing Authority (PFA) is a joint exercise of powers agency formed by the city of Alameda and its Community Improvement Commission. The PFA serves as a municipal financing vehicle and has supported multiple capital improvement projects for the city. While predominantly a bedroom community, Alameda also has a significant commercial base, including the areas that make up the CFD and AD. Alameda had a relatively low unemployment rate of 7.1% in April 2011, compared with 11.7% and 8.7% for the state and nation, respectively. Income and wealth levels have also historically exceeded state and national averages, and the assessed valuations of the special districts have held relatively steady. The city's resiliency in part reflects the maturity of this small community, which has been largely built out for decades.

Proceeds of the series 2010A and series 2010B bonds were used to purchase local obligations of the CFD and AD, respectively. The repayment of the local obligations relies upon special taxes and assessments on district property owners and as a result, the ratings for the 2010A and 2010B bonds are based on the credit characteristics of the CFD and AD, respectively. The CFD tax is levied at a rate intended to achieve 1.0 times (x) coverage of its obligation to the authority, which in turn provides the same coverage for the 2010A series bonds. However, the CFD has ample flexibility to increase its tax rate, which if levied at the maximum rate would provide 1.7x coverage of its payment to the PFA. In addition, AD revenues are also pledged towards the senior 2010A bonds. The AD assessment is limited to 1.1x of debt service on the series 2010B bonds, which have no access to CFD revenues for debt service purposes. This and the subordinate pledge of the AD revenue contribute to the lower rating for the subordinate series 2010B.

Community Facilities District No. 1

The CFD consists of 630 single family homes on 123 acres of land located in the mixed-use community of Harbor Bay Isle. The fully built-out district levies special taxes on all residential properties up to a maximum amount, which is dictated by a special tax formula. The formula is based predominantly on square footage and allows for an automatic annual 2% rate escalator. For fiscal year 2011 the special tax rate was levied at 61% of the maximum rate. The debt service reserve fund is equal to 10% of par outstanding for the 2010A bonds. Because the tax base consists solely of single family homes, concentration among the top 10 taxpayers is a low 3.1%. The CFD additionally benefits from a high value to lien ratio of 36:1, and a history of low delinquencies. From fiscal years 1997 - 2008 the delinquency rate was zero, rising to 0.58% in fiscal 2009, 2.31% in fiscal 2010, and 1.71% in fiscal 2011. Delinquencies could rise significantly before debt service coverage levels would be materially impacted, and the lien is closed. Assessed valuation levels dropped by a modest 0.6% in fiscal 2010, however, tax rates are levied independently of valuation levels.

Direct debt levels for the CFD are moderate at 2.8% of taxable assessed value, but overlapping debt escalates net debt levels to a high 5.4%. Capital needs for the CFD are limited, and the closed lien prevents the issuance of parity debt. Amortization is rapid with 100% of principal maturing within 10 years.

Reassessment District No. 10-1

The AD includes 206 acres of commercial and industrial properties comprised of 71 parcels in the northern portion of Alameda. The area is located south of Oakland Inner Harbor, and east of two tunnels that connect the city to Oakland. The district is nearly fully developed, with commercial and industrial parcels providing 96% of assessment liens. Taxpayer concentration is extremely high, with the top taxpayer, Legacy Partners I Alameda LLC, accounting for 60% of total assessment revenues. The second largest taxpayer accounts for 13% of total revenues, and the top 10 taxpayers make up 94% of the tax base. However, the value to lien ratio for the district is a high 39:1, and delinquencies historically have been close to zero.

Assessments are levied at the rate that would be sufficient to cover administrative expenses and debt service on the AD's local obligations. The AD does not have the authority to raise the assessment amount in the event of delinquencies.

Debt service is structured so that local assessments will cover subordinate series 2010B debt service a low 1.10x, assuming no delinquencies. The risks related to an inflexible assessment levy, low debt service coverage, and high taxpayer concentration are somewhat offset by rapid amortization with maturity in 2014 and a $2.2 million delinquency maintenance fund, sufficient to pay one year of debt service. In addition, the city's Community Improvement Commission has entered into an agreement with the city and the PFA to redress potential AD delinquencies from a $2.9 million fund established to reimburse property owners for tax payments. To reduce the potential impact of delinquencies upon debt service payment the city has also covenanted to initiate foreclosure proceedings within 150 days of notification by the district, which Fitch views as a somewhat weak timeframe in consideration of concentration levels.

Direct debt levels are a moderate 2.6%, but overlapping debt raises net debt levels to a somewhat high 4.4%. Capital needs are limited, and the closed lien prevents the district from issuing parity debt. Amortization is extremely rapid with 100% of principal maturing by 2014.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in the 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, Zillow.com, and National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 16, 2010).

--'U.S. Local Government Tax-Supported Rating Criteria' (Oct. 08, 2010).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566

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