Fitch Affirms Keppel USD CFD No. 91-1, CA Special Tax Bonds at 'A-'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings has affirmed the following Keppel Union School District Community Facilities District (CFD) No. 91-1, CA bonds:

--$350,000 special tax refunding bonds, series 1999A at 'A-'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from 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, a cash-funded debt service reserve fully funds the Sept. 1, 2016 final maturity, and no additional leverage is planned.

LOCAL SOCIOECONOMIC CONSTRAINTS: The predominantly agricultural economy exhibits historically high unemployment and lagging income levels. The weakened local property market has been rebounding since fiscal 2014, although the historically stable number of taxable parcels continues to experience elevated levels of special tax payment delinquencies.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including continued adequate debt service coverage despite elevated levels of special tax payment delinquencies. A cash-funded debt service reserve is sufficient to fully fund the Sept. 1, 2016 final maturity of the special tax refunding bonds, series 1999A.

CREDIT PROFILE

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. 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. However, the CFD's assessed valuation (AV) has started to rebound after a four year decline, growing by 2.2% in fiscal 2014 and 3.7% in fiscal 2015, with continued stability projected in fiscal 2016.

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. The special tax has a parity lien with ad valorem property taxes on each of the CFD's 3,008 property parcels.

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, which has typically been modest, dropped to 1.17x but improved in fiscals 2013-2015 to 1.28x-1.35x. Under a Fitch stress test, current year tax collections would have to drop to approximately 77% in order to decline to 1.00x annual debt service coverage in fiscal 2016.

LIMITED DEBT NEAR FINAL MATURITY

Fitch estimates that direct debt for the CFD is a very low $112 per capita (based on a population of 3,128 residents) and only 0.03% of the CFD's AV. Net debt and overlapping debt is a much higher $4,431 per capita but remains low at 1.06% of the CFD's AV. The final bond repayment will be made on Sept. 1, 2016 and the funds are already set aside in the bonds' cash-funded debt service reserve fund. The CFD has no further debt issuance plans at this time.

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

Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)

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

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=990480

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990480

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Alan Gibson
Director
+1-415-732-7577
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Matthew Reilly
Associate Director
+1-415-732-7572
or
Committee Chairperson
Arlene Bohner
Senior Director
+1-212-908-0554
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Alan Gibson
Director
+1-415-732-7577
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Matthew Reilly
Associate Director
+1-415-732-7572
or
Committee Chairperson
Arlene Bohner
Senior Director
+1-212-908-0554
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com