Fitch Maintains Rating Watch Negative on Santa Cruz County Redevelopment Agency, CA's TABs

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

--$157.6 million TABs, series 2000, 2000A, 2003, 2005A, 2005B, 2007, and 2007A rated 'A'.

SECURITY

The TABs are secured by a first pledge and lien on net incremental property tax revenues generated by the sole Soquel/Live Oak project area. The revenues are net of county administration fees, tax-sharing agreements, AB 1290 pass-through obligations, and the statutory 20% housing set-aside, except for the portion of the TABs that financed low and moderate income housing qualifying projects. The debt service reserve requirement is satisfied through a combination of cash-funded reserve and surety bonds from Ambac Assurance Corporation and National Public Financial Guarantee Corporation.

KEY RATING DRIVERS

AB 1484 DISPUTE CONTINUES: The bonds remain on Rating Watch Negative pending resolution of the on-going dispute between the Successor Agency (SA) for Santa Cruz County RDA and the state's Department of Finance (DOF). The dispute is 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 ($11.6 million) and made only a partial payment ($599,079) to retain sufficient funds for its Sept. 1, 2012 debt service payment.

NEAR-TERM RESOLUTION EXPECTED: Management indicated that they are working with the DOF to file a stipulated agreement that would resolve the dispute. Under the agreement, the SA would no longer be required to make the outstanding AB 1484 payment and the DOF would issue a finding of completion. Fitch views this as a positive development and expects to remove the Rating Watch once the agreement is finalized, which management expects over the next couple of weeks.

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. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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Contacts

Fitch Ratings
Primary Analyst
Matthew Reilly, +1-415-732-7572
Associate Director
Fitch, Inc.
650 California St
San Francisco, CA 94133
or
Secondary Analyst
Shannon Groff, +1-415-732-5628
Director
or
Committee Chairperson
Amy Laskey, +1-212-908-05688
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Matthew Reilly, +1-415-732-7572
Associate Director
Fitch, Inc.
650 California St
San Francisco, CA 94133
or
Secondary Analyst
Shannon Groff, +1-415-732-5628
Director
or
Committee Chairperson
Amy Laskey, +1-212-908-05688
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com