Fitch Affirms Newman RDA, CA's TABS at 'BBB+'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the following tax allocation bonds (TABs) for Newman Redevelopment Agency, California (the RDA):

--$2.1 million TABs, series 1997, at 'BBB+'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a senior lien on redevelopment project area tax increment revenues above the 1993 base year, collected within the sole project area. The security includes the 20% set-aside for low and moderate income housing.

KEY RATING DRIVERS

SOUND DEBT SERVICE COVERAGE: Fitch-estimated maximum annual debt service (MADS) coverage levels are sound. These levels hold up well under Fitch-designed stress scenarios.

HIGH TAX BASE CONCENTRATION: The relatively small tax base is very concentrated in terms of both the largest taxpayer and the top 10 payers. This risk is amplified by the high revenue volatility inherent in the low incremental value to base year ratio.

SOUND AV CUSHION: The TABs are characterized by a sound assessed value (AV) cushion (defined by the percentage of one-time AV decline that the tax base is able to withstand while maintaining 1x MADS coverage) of about 40.5%. AV posted solid gains in fiscal year 2014 as development picked up and the housing market continued to recover slowly.

LIMITED LOCAL ECONOMY: The city of Newman is primarily an agricultural community, with economic activity centered upon agricultural product processing. City wealth levels are below average and unemployment is elevated.

RATING SENSITIVITIES

SATISFACTORY AB1X26 IMPLEMENTATION: The rating incorporates the expectation that the agency will continue its satisfactory implementation of AB1x26 (dissolution legislation) procedures.

COVERAGE CHANGES: Significant shifts in AV resulting in meaningful sustained debt service coverage changes could prompt a rating action, either positive or negative.

CREDIT PROFILE

The city of Newman, population 10,639, is located in the western section of Stanislaus County, 100 miles south of Sacramento (implied general obligation rating of 'AA-', Stable Outlook by Fitch).

CONCENTRATED PROJECT AREA, RECOVERING TAX BASE

The project area is small at 605 acres but encompasses essentially all of the city's commercial area and a substantial portion of its residential area, totaling one-third of the city's AV. Commercial and industrial concerns each comprise around one-quarter of the tax base, with residential properties accounting for the remainder.

Taxpayer concentration is very high. The leading project area taxpayer, Saputo Inc. (a cheese processor) represents a sizable 23% of AV and a very high 44% of incremental value (IV). The top 10 taxpayers are also quite concentrated at 35% of AV and 67% of IV. The IV/base year value is a low 123%, contributing a high degree of revenue volatility.

The secured AV declined a notable 21.5% between fiscal 2008 and fiscal 2011, reflective of the stressed economy. AV has continued to grow since, posting a solid 5.2% gain from fiscal year 2013 to fiscal year 2014, but the tax base remains well below its peak value. Fitch believes the prospects for further AV growth are favorable given a mild pick-up in local development and continued housing market recovery.

SOUND COVERAGE AND AV CUSHION

Fiscal 2014 MADS coverage and AV cushion remain sound at 3.28x and 40.5%, respectively. Tax increment revenues are sufficient to sustain moderate stresses. MADS coverage stays above 1x under various stress scenarios, such as the loss of top 10 taxpayers and no AV growth.

Pledged tax increment revenues are derived from growth in the tax base above the fiscal 1993 level and include the required 20% set-aside for low and moderate income housing. Tax-sharing agreements provide for subordination of pass-through payments.

WEAK LOCAL ECONOMY

The city's narrow economy is focused on agriculture and food processing. Housing values were significantly negatively impacted during the recession, although slow recovery is evident. Stanislaus county's high unemployment rate of 13.6% (March 2014) has decreased from 14.3%, due primarily to a mild positive change to employment and a mild negative change to the labor force. The unemployment rate in the City of Newman was a very high 18.5% in April 2014, according to state statistics. City wealth levels are below state and national averages.

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, National Association of Realtors, and Zillow.

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=836973

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Contacts

Fitch Ratings
Primary Analyst
Brendan Scher
Analyst
+1-212-908-0686
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Matthew Reilly
Director
+1-415-732-7572
Committee Chairperson
Jessalynn Moro
Managing Director
+1-212-908-0608
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Brendan Scher
Analyst
+1-212-908-0686
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Matthew Reilly
Director
+1-415-732-7572
Committee Chairperson
Jessalynn Moro
Managing Director
+1-212-908-0608
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com