SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has affirmed the following rating for Keppel Union School District Community Facilities District (CFD) No. 91-1, CA:
--$1.3 million special tax refunding bonds, series 1999A at 'A-'.
The Rating Outlook is Stable.
The bonds are secured by gross revenues comprising a special tax levied on parity with property taxes on the taxable land within the CFD, and proceeds from judicial foreclosure sales of properties within the CFD as a result of special tax payment delinquencies. These gross revenues are net of up to $40,000 per year of administrative expenses.
KEY RATING DRIVERS
VOLATILE REVENUES, MODEST COVERAGE: Annual special tax revenues have been volatile due to uneven tax collection rates. Pledged revenues typically provide only modest debt service coverage. However, amortization is rapid and Fitch does not expect additional leverage.
SOLID RESERVES: Concerns about annual coverage are somewhat offset by an available fund balance which, while not pledged, is relatively large and liquid. Other permitted uses of reserves besides debt repayment are limited. Bondholder protections include a fully cash-funded debt service reserve.
WEAKENED TAX BASE AND ELEVATED DELINQUENCIES: The weakened local property market has finally started to rebound after four years of declines. However, the historically stable number of taxable parcels continue to experience elevated levels of special tax payment delinquencies.
LOCAL SOCIOECONOMIC CONSTRAINTS: While the predominantly agricultural economy exhibits historically high unemployment and lagging income levels, local population levels and student enrollment remain stable.
The rating is sensitive to shifts in fundamental credit characteristics including ongoing adequate debt service coverage. The Stable Outlook reflects Fitch's expectations that such shifts are unlikely and that the rating is unlikely to improve due to the CFD's very limited local economy and tax base.
The 17-square mile CFD is located in the rural northwestern portion of unincorporated Los Angeles County, approximately 80 miles north of the city of Los Angeles, and the local economy is substantially limited to agricultural activities. As in many agricultural communities, economic indicators lag the state and nation and the local tax base has been pressured, with little anticipated economic or population growth in the foreseeable future.
SECURITY FEATURES ARE MIXED
The primary security for the bonds is a special tax of a minimum of $90 per parcel, with additional charges ($15-$90) per each additional acre or portion thereof, up to a maximum annual special tax of $2,400. Fitch recognizes the strength of this special tax's parity lien with ad valorem property taxes on each of the CFD's roughly 3,000 properties.
The secondary security for the bonds is the proceeds from judicial foreclosure sales of properties within the CFD as a result of special tax payment delinquencies. The CFD has never had to initiate any such foreclosure proceedings.
Bondholder protections include an additional bonds test of 1.10x MADS plus $40,000 for administrative expenses (strengthened by a requirement that 95% of special tax revenues be generated from properties with a value-to-lien ratio of at least 3:1). Fitch views this test as weak but typical of property-based special tax securities. Bonds are not subject to acceleration.
PLEDGED REVENUE VOLATILITY AFFECTS COVERAGE
Tax collection rates remain volatile. In fiscal 2012, total special tax collection rates dropped to an all-time low of 87.3%, likely due to the recession's impact on local property owners. Debt service coverage dropped to 1.17 times (x) but improved in fiscal 2013 to 1.35x, reflecting a much improved total special tax collection rate of 99.8%. Under a Fitch stress test, current year tax collections would have to drop to 75.5% in order to decline to 1.00x annual debt service coverage.
STRONG RESERVES; LIMITED DEBT
As of June 30, 2012, the CFD's cash reserves were $2.8 million, which is more than sufficient to retire all outstanding bonds; however, management has been advised by its fiscal agent (U.S. Bank) that it cannot do so. Since the cash reserves cannot be used to prepay debt service (although they are available to make up any future special tax collection shortfalls), they are available to pay for school repair and modernization projects at the Lake Los Angeles Elementary School. Since that school does not face significant student enrollment growth pressures, the CFD has no need to issue additional debt to fund expansion of its current facilities.
Fitch estimates that direct debt for the CFD is a low $339 per capita (assuming the CFD represents one-fifth of the entire school district's 2010 census population of 19,301). Direct debt represents only 0.1% of the CFD's assessed valuation. Amortization is very rapid with 100% retired by Sept.ember 1, 2016.
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, 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
U.S. Local Government Tax-Supported Rating Criteria