SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA+' rating to the following Sacramento Transportation Authority (the authority), CA sales tax revenue bonds:
--$106.1 million sales tax revenue bonds, series 2015A.
In addition, Fitch assigns an 'AA+' rating to bank bonds associated with the series 2015A bonds.
Bond proceeds will be used to refund outstanding sales tax revenue bonds, series 2009B. The bonds will be sold via negotiation the week of March 2. The final maturity date on the series 2015 bonds is Oct. 1, 2038.
The Rating Outlook is Stable.
SECURITY
The sales tax revenue bonds are secured by revenue from the 1/2 cent retail transactions and use tax (sales tax) authorized by the voter approved Measure A ordinance and levied throughout Sacramento County (the county), net of the state's Board of Equalization administrative fee. The Measure A sales tax expires on March 31, 2039.
KEY RATING DRIVERS
STRONG DEBT SERVICE COVERAGE: Coverage of maximum annual debt service (MADS) by fiscal 2014 pledged revenue is strong at 2.78 times (x). Coverage levels should remain strong as future debt plans are limited and constrained by a solid additional bonds test (ABT) of 1.8x MADS and restrictive capital spending limitations included in the Measure A ordinance.
VOLATILE TAX BASE: Revenues declined by a sharp 25.8% from 2006-2010 but recorded moderate to modest annual growth rates over the past four years. The tax base is moderately concentrated with the top 10 taxpayers generating nearly 14.5% of total revenues.
IMPROVING ECONOMY: The county's economy continues to improve, aided by a stabilizing state government and a recovering real estate market. However, despite solid job growth over the past year the unemployment rate remains elevated at 6.8% (November 2014). Healthy population growth and some diversification of employment sectors are expected to support sound revenue growth over the medium term.
LIMITED OPERATING RISK: The authority is a granting agency and does not operate a public transportation system, which Fitch views positively as it reduces financial risks.
SUPPORT FOR ESSENTIAL PROJECTS: Fitch views positively the strong voter support for the Measure A program and the essentiality of projects and programs supported by Measure A revenues.
RATING SENSITIVITIES
STRONG CREDIT FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including consistently strong debt service coverage. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
The authority allocates funding for public transit systems and oversees the construction and improvement of roads, highways, and other transit projects. The authority does not own or operate a public transit system. Given the entity's relatively narrow role, Fitch believes the authority has very limited exposure to operating risks from related transit agencies.
STRONG DEBT SERVICE COVERAGE
The bonds benefit from strong projected debt service coverage levels. Coverage of MADS on outstanding debt, including the series 2015 bonds, is 2.78x, based on fiscal 2014 sales tax revenues. Coverage levels are projected to remain sound under various Fitch performed stress tests.
Fitch views the authority's outstanding variable rate debt (approximately 85.6% of total debt) as elevated but manageable. Rating concerns are offset by the relatively limited leveraging of sales tax revenues and the authority's expected good market access. All of the variable rate debt is synthetically fixed through interest rate swaps with multiple counterparties. Negative termination values are high at approximately $100 million (Dec. 31, 2014), although the authority does not have plans to unwind the agreements and any termination payments would be subordinate to debt service.
LEVERAGING CONSTRAINTS AND FUTURE DEBT PLANS
Strong coverage levels are somewhat protected by the authority's solid 1.8x ABT and leveraging constraints included in the voter approved ordinance. The ordinance detailed an allocation of revenues by program that effectively constrains capital spending to 20.75% of annual revenues.
The authority has limited debt issuance plans with a preliminary estimate of approximately $80 million in additional debt through 2020. Fitch views the tentative debt plans as modest and unlikely to significantly affect MADS coverage.
SOLID REVENUE PERFORMANCE
Sales tax revenues are generated by a broad-based 1/2 cent sales tax on all taxable transactions within the county. Revenue performance is supported by a moderately concentrated group of sales tax generators. The largest taxpayer, Costco Wholesale, and the top 10 taxpayers comprise 2.8% and 14.5%, respectively, of total sales tax revenues.
Fiscal 2014 revenues remained 8.8% below the previous high recorded in fiscal 2006 ($109.7 million), reflecting the significant 25.8% decline from 2006-2010. However, revenue performance began to improve in fiscal 2011 and has subsequently grown at a moderate to modest annual rate, including growth of 2.7% and 5.6% in fiscals 2014 and 2013, respectively. Projections for fiscal 2015 reflect continued growth of 5%-6% due to an improving economy.
IMPROVING ECONOMY
Sacramento County is home to Sacramento, the state capital, which serves as the economic base for the region. The state is by far the largest employer in the county with approximately 72,220 employees. However, the county is experiencing some diversification in its employment sectors with health care and technology related industries playing an increased role.
The county's unemployment rate of 6.8% (November 2014) remains elevated compared to pre-recession levels, but is down from its high of 12.7% in 2010. Positively, employment growth has generally been above national averages from 2011-2013 and appears to have quickened over the past year.
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.
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=980516
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