Fitch Maintains Chico Redevelopment Agency, CA's TABs on Rating Watch Negative

SAN FRANCISCO--()--Fitch Ratings maintains the Rating Watch Negative for the following Chico Redevelopment Agency, CA (RDA) tax allocation bonds (TABs):

--$65.3 million Chico Amended and Merged Redevelopment Project TABs, series 2005 'A+';

--$ 19.2 million Chico Amended and Merged Redevelopment Project refunding TABs, series 2007, 'A+'.

SECURITY

The bonds are secured by tax increment revenues generated within the sole project area, Chico Amended and Merged Redevelopment Project Area, net of the 20% housing set-aside and senior statutory pass-throughs.

KEY RATING DRIVERS

AB 1484 DISPUTE CONTINUES: The City of Chico (the city) has been recognized as the successor agency (SA) to the RDA. The bonds remain on Rating Watch Negative pending resolution of the on-going dispute between the SA and the state's Department of Finance (DOF) regarding the repayment by the SA of property tax distributions from December 2011 and January 2012 that the state believes should have been directed to other taxing entities. The SA disputes the amount due ($11.2 million), but did make a partial payment of $961,207 in July 2012.

POTENTIAL RESOLUTION: DOF has stated that they currently do not intend to enforce non-payment penalties while the matter is in dispute. DOF further stated it is working on a process for handling the disputes on a case by case basis with more details expected to be released in the near-term. Fitch views this as a potentially positive development, depending on the process' details, but notes that until the dispute is resolved, risks to bondholders are elevated.

OCTOBER 2012 DEBT SERVICE PAYMENT MADE: The SA made the full October 1st debt service payment from available funds. Funding for the payment was approved under the July 1, 2012 to Dec. 31, 2012 recognized obligation payment schedules (ROPS). Funding for the next debt service payment, due April 1, 2013, was approved under the Jan. 1, 2013 to June 30, 2013 ROPS.

WHAT COULD TRIGGER A DOWNGRADE

A final resolution with DOF leaving the SA without sufficient funds to continue to pay debt service could result in a downgrade, possibly to below investment grade.

CREDIT SUMMARY

The city is located 90 miles north of Sacramento and 174 miles northeast of San Francisco and is the major retail, recreational, educational, financial, and commerce center for Butte County and the surrounding area. The project area is large and encompasses 16 square miles and about 40% of the city and portions of unincorporated Butte County.

The project area's taxable value represents a good mix of residential, commercial, and industrial properties and AV growth has historically been very sound. For fiscal 2011, the project area experienced its first decline in total AV as AV dropped 3.1% compared to fiscal 2010 due to a combination of successful property appeals and Proposition 8 reductions. AV declined again in fiscal 2012, but at a lower rate (1.6%). Debt service coverage, however, remains strong with fiscal 2011 tax increment revenue coverage of maximum annual debt service at 2.42x, and coverage of 2.38x reflecting a 1.6% decline.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's 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, and National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

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

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

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Contacts

Fitch Ratings
Primary Analyst
Scott Monroe, +1-415-732-5618
Director
Fitch, Inc., 650 California Street
San Francisco, CA 94108
or
Secondary Analyst
Maria Coritsidis, +1-212-908-0514
or
Committee Chairperson
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Scott Monroe, +1-415-732-5618
Director
Fitch, Inc., 650 California Street
San Francisco, CA 94108
or
Secondary Analyst
Maria Coritsidis, +1-212-908-0514
or
Committee Chairperson
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com