Fitch Affirms Rohnert Park CDC, CA's TABs at 'A'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings has affirmed the following Rohnert Park Community Development Commission, California tax allocation bonds (TABs):

--$29.9 million series 1999 at 'A'.

The Rating Outlook is Stable.

The bonds are secured by tax increment revenues generated within the project area, net of administrative fees, pass-through amounts, and housing set-aside and are additionally payable from housing increment on a subordinate basis to housing TABs.

KEY RATING DRIVERS

SOUND COVERAGE: Fiscal 2016 maximum annual debt service (MADS) coverage on non-housing bonds is expected to be 2.8x and holds up sufficiently under various Fitch stress tests.

CLOSED LIEN AFTER DISSOLUTION: Fitch considers all TAB liens to be closed, as successor agencies (SAs) are not permitted to issue new money TABs. In addition, Fitch recognizes the availability of surplus 20% housing set-aside revenues for non-housing TAB debt service.

RESILIENT TAX BASE: Project area assessed value (AV) experienced relatively minor declines during the recession, and has shown modest recovery since 2014. The project area is somewhat concentrated in its top 10 property taxpayers.

RATING SENSITIVITIES

TAX BASE PERFORMANCE: The rating is sensitive to shifts in fundamental credit characteristics, specifically the successor agency's tax base performance. The Stable Outlook reflects Fitch's expectation that significant shifts are unlikely.

CREDIT PROFILE

The Rohnert Park redevelopment plan (the project area) encompasses a total of roughly 1,700 acres of residential, commercial, and industrial properties in the city of Rohnert Park (the city), which is about eight miles south of Santa Rosa, and 48 miles north of San Francisco. The project area is approximately 40% of the city, mostly in the northwest portion of the city extending on both sides of Highway 101.

STABLE ECONOMY

The city's economy is led by tourism as a result of proximity to Sonoma wineries, redwoods, and golf courses. It is also home to Sonoma State University, with over 9,000 students and 1,200 employees, making it the city's largest employer. Graton Casino opened in November 2013 outside of, but adjacent to the city.

The real estate market is recovering from its 2012 low. The house price index has shown nearly 70% cumulative increase since 2012 according to Zillow, but is still 15% below its 2006 peak.

RECOVERING TAX BASE

Project area AV grew a cumulative 15% since fiscal 2013, after four years of modest declines. The cumulative peak-to-trough decline was 8.3% from 2009 to 2013. Fitch expects AV growth to continue as the real estate market recovers. Approximately 35% of the land in the project area is for residential use, where house price increases will continue to be reflected in AV.

The major taxpayers within the project area have remained stable in terms of both composition and AV values. The project area is somewhat concentrated in the top 10 taxpayers, which account for 16% of total project area AV, or 22% of incremental value (IV) in fiscal 2014. There is no significant concentration in industries or land use. Previously outstanding AV appeals among the top 10 seem to have largely been resolved. As of fiscal 2016, estimated loss due to appeals is $3.9 million, equivalent to less than 1% of project area AV.

SOUND COVERAGE

Fitch estimates fiscal 2016 MADS coverage at 2.8x, including surplus housing revenue (the 20% set-aside minus housing bonds debt service). MADS coverage remains sufficient under stress scenarios, including the loss of the top 10 taxpayers, continued AV declines of 2.2% a year, and the loss of all outstanding appeal values. AV would have to decline by a high 44% in one year to reach 1x MADS, due to the relatively mature nature of the project area. The IV to base-year value is moderate at over 2.9x, indicating that volatility in AV does not have an exaggerated impact on IV.

REDEVELOPMENT DISSOLUTION - NEUTRAL-TO-POSITIVE IMPACT

Fitch refined its California RDA analysis pertaining to the beneficial impact of dissolution legislation (AB 1X 26) in May 2014. Fitch now considers TAB liens to be closed and surplus housing revenues to be available for non-housing TAB debt service. Although uncertainties remain, Fitch believes it is likely that the continued presence of closed TAB liens and surplus housing revenue availability will remain a feature of California TABs.

COMPLIANCE WITH DISSOLUTION PROCEDURES

Dissolution-related (AB 1X 26) risks are lessening as management is continuing to adhere to indenture requirements, necessary revenue tracking is in place, timely and robust continuing disclosure reports are being provided, and debt service reserves are being used to mitigate dissolution related cash flow issues. Since dissolution, the successor agency's procedures to manage dissolution have become well-established, lessening operational risks.

Additional information is available at 'www.fitchratings.com'.

Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to less than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by the end of the first quarter of 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.

In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from CreditScope, IHS Global Insight, and Zillow Group.

Applicable Criteria

Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942

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=998843

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=998843

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
Yueping Liu
Associate Director
+1-415-732-5629
Fitch Ratings, Inc.
650 California Street, 4th floor
San Francisco, CA 94108
or
Secondary Analyst
Alan Gibson
Director
+1-415-732-7577
or
Committee Chairperson
Arlene Bohner
Senior Director
+1-212-908-0554
or
Media Relations:
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Yueping Liu
Associate Director
+1-415-732-5629
Fitch Ratings, Inc.
650 California Street, 4th floor
San Francisco, CA 94108
or
Secondary Analyst
Alan Gibson
Director
+1-415-732-7577
or
Committee Chairperson
Arlene Bohner
Senior Director
+1-212-908-0554
or
Media Relations:
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com