Fitch Affirms Rocklin USD CFD No. 1 & 2, CA Special Tax Bonds at 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the following Rocklin Unified School District (USD) Community Facilities District (CFD) No. 1, CA ratings at 'AA-':

--$4.9 million refunding special tax bonds, series, 2007;

--$18.7 million special tax bonds, series 2000, 2001, 2004, and 2007.

In addition, Fitch has affirmed the following Rocklin USD CFD No. 2, CA rating at 'AA-':

--$10.2 million special tax bonds, series, 2007.

SECURITY

All of the CFD special tax (Mello-Roos) bonds are secured by the combined proceeds of annual special taxes levied and collected from property within CFD Nos. 1, 2, and 3. The special tax levy is capped at currently-levied maximum rates, with automatic annual adjustments of 2%-3%, for various parcel categories. The bonds are also supported by a surety-funded debt service reserve fund equal to maximum annual debt service (MADS).

KEY RATING DRIVERS

NARROW DEBT SERVICE COVERAGE MITIGATED: Concerns over narrow debt service coverage levels are partially offset by a very high value-to-lien ratio, a covenant to pursue accelerated foreclosure if conditions warrant, and the ability to levy backup taxes, if necessary, and the liquidity cushion provided by a large balance of unpledged but available capital reserves.

STRONG ECONOMIC FUNDAMENTALS: The CFDs are component units of the Rocklin USD (GO bonds rated 'AA-'/Outlook Stable by Fitch), whose residents exhibit above average wealth levels and strong employment metrics, mitigating the risk of parcel tax delinquencies. The residential tax base has grown moderately in the last two fiscal years following a sustained period of decline. The value to lien ratios remain ample for both CFDs.

MANAGEABLE DEBT BURDEN: Debt levels are moderate with average amortization and are expected to remain manageable even including authorized but unissued debt.

RATING SENSITIVITIES

Timely property tax payments and maintenance of satisfactory available liquidity are important offsets to narrow debt service coverage. Therefore, a significant decline in available reserves or a substantial increase in delinquencies would likely result in downward rating action.

CREDIT PROFILE

The three CFDs are component units of the Rocklin USD which is located in the southwest portion of Placer County, 14 miles northeast of Sacramento. The district had a 2014 population of around 60,000, following rapid growth over the last decade, increasing by 47% between 2000 and 2010 but moderating in recent years.

NARROW DEBT SERVICE COVERAGE WITH SIGNIFICANT MITIGANTS

Primary credit support is derived from the pledge of combined annual parcel taxes on all three CFDs. The voter-approved special tax levy is designed to cover annual debt service payments by 1.15x including sinking fund deposits for the accreted interest on future capital appreciation bond (CAB) repayments, fund anticipated delinquencies, replenish the required bond reserves, and cover all pay-as-you-go expenses. Fitch considers the 1.15x coverage adequate to meet these needs.

The special tax levies are not tied to parcels' taxable assessed values (TAVs) and, therefore, pledged special tax revenues are protected against declining property values. The CFDs covenant to pursue unilaterally accelerated foreclosures if delinquencies exceed 5% or if an individual delinquency exceeds $10,000.

The special tax levy grows 3% annually for CFD Nos. 1 and 2 and 2% annually for CFD No. 3. Each developed parcel is subject to the special tax levy for 22 years in CFD No. 1, 25 years in CFD No. 2 and 30 years in CFD No. 3, beginning in the year of permitted development. If parcel taxes on developed parcels are projected to be insufficient due to significant delinquencies, backup taxes can be imposed on undeveloped parcels, as had been done in past years.

Upon issuance of the most recent bonds in 2007, special tax revenues were sized to hold steady at 1.15x annual debt service. When delinquency payments and fees are added to current-year collections, debt service has been covered more than 1.15x since at least fiscal 2007; however, debt service coverage based on current year collections has dropped as low as 1.08x as a result of recessionary delinquencies.

Special tax revenues are collected by the county at the same time as ad valorem property tax revenues. While the CFDs are not guaranteed 100% of their current year special tax collections because Placer County's Teeter Plan excludes special taxes and assessments, they do receive delinquent payments and related penalties.

Despite narrow coverage margins, the CFDs have accumulated substantial balances from excess special tax revenues, including $21.6 million unreserved in the Capital Projects Fund. While this amount is not pledged to bond repayment, it currently represents 3.05x fiscal 2015 debt service requirements, providing an ample liquidity cushion. Fitch puts no weight in its rating on the surety-funded debt service reserve fund equivalent to MADS of $7.2 million.

IMPROVING ECONOMY AND TAX BASE

The local economy has improved following recessionary contraction. The unemployment rate decreased substantially to 5.4% in February 2015 from 7.2% the year prior, due to employment expansion of 2.3%. Resident wealth levels are above average, with median household income at 128% of the state and 147% of the U.S.

The tax bases for the CFDs and the district have begun to rebound following several years of decline. The CFDs' combined TAV declined 11.9% from the peak recorded in fiscal 2009 to the trough in fiscal 2013. TAV then increased moderately by 4.6% in fiscal 2014, followed by higher growth of 8.6% in fiscal 2015, and management expects modest growth going forward. Fitch considers prospects for growth to be reasonable given undeveloped land (whose future developed parcels will be subject to the special tax at the higher developed parcel rate) and favorable trends in the regional residential real estate market. CFD 3 has the greatest proportion of developable acreage remaining.

AFFORDABLE DEBT

Direct debt levels are low at 1.3% of the CFDs' combined TAV or $873 per capita; overall debt levels are moderate at 3.4% of the district's total TAV and $3,937 per capita. Debt amortization is above-average at 68% in 10 years, when annual sinking fund deposits for accreted interest on capital appreciation bonds are taken into account. Additional CFD debt might be required in the medium term if the USD decides to proceed with new school construction given its ongoing student enrollment growth. However, the 1.15x additional bonds test limits the amount of additional debt issued.

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.

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=984376

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Contacts

Fitch Ratings, Inc.
Primary Analyst
George M. Stimola
Analyst
+1-212-908-0770
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Karen Ribble
Senior Director
+1-415-732-5611
or
Committee Chairperson
Amy R. Laskey
Managing Director
+1-212-908-0568
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
George M. Stimola
Analyst
+1-212-908-0770
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Karen Ribble
Senior Director
+1-415-732-5611
or
Committee Chairperson
Amy R. Laskey
Managing Director
+1-212-908-0568
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com