Fitch Affirms Atascadero Community Redev Agency, CA's TABs at 'A-'; Outlook Stable
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings on Atascadero Community Redevelopment Agency, CA's (RDA) tax allocation bonds (TABs) as follows:
--$11.3 million TABs, series 2004 at 'A-'.
The Rating Outlook is Stable.
The bonds are secured by a pledge of the agency's net tax increment revenues produced by levies against the incremental valuation in the project area, subject to various statutory set-asides and pass-throughs, as well as revenues held in certain funds by the agency.
KEY RATING DRIVERS
SOLID DEBT SERVICE COVERAGE: Coverage of TABs maximum annual debt service (MADS) remains solid. MADS coverage by 2014 revenues is 2.95x. Including subordinate debt obligations, MADS coverage is 1.4x.
STABLE ECONOMY; ASSESSED VALUE IMPROVES: After prior year declines, project area taxable assessed value (TAV) stabilized in fiscal 2013 and has returned to growth in fiscal 2014. City income and wealth levels are above average and unemployment is below state and national averages.
SATISFACTORY AB 1X26 IMPLEMENTATION: The city of Atascadero (the city) has been recognized as the successor agency (SA) to the RDA. The rating incorporates the expectation that the SA will continue its satisfactory implementation of AB 1X26 (dissolution legislation) procedures.
The rating is sensitive to shifts in fundamental credit characteristics including debt service coverage, project area characteristics, and tax base performance. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
The city of Atascadero is located midway between Los Angeles and San Francisco within San Luis Obispo County (Fitch implied general obligation rating 'AA+' with a Stable Outlook), approximately 20 miles north of San Luis Obispo. The agency project area was established in 1999 and contains about 1,100 acres, encompassing the downtown area, including several commercial and residential developments. The project area represents 6.6% of the city's total area.
PROJECT AREA ASSESSED VALUE IMPROVES
After strong growth in prior years, the project area recorded 2% to 2.5% annual declines in TAV starting in fiscal 2010. Values have stabilized recently, with flat performance in fiscal 2013 and growth of 1.3% in fiscal 2014. Management expects continued growth going forward, which appears reasonable given recent improvement in the local real estate market and planned future development.
The project area's tax base represents a mix of primarily residential (49%) and commercial (43%) properties, with industrial properties at about 4%. Tax base concentration is moderate. The top taxpayer, Wal-Mart, represents 3.2% of TAV and 5.9% of incremental value (IV), while the top 10 taxpayers are at 15.4% of AV and 28.5% of IV. In addition to Wal-Mart, owner of land associated with planned construction of a new store, leading taxpayers include several large commercial centers, a hotel, and multi-tenant shopping centers.
City employment trends have been positive, with local area employment somewhat limited to the education and medical sectors. Unemployment has declined to 4.6% in December 2013 from 5.9% in December 2012 and remains below state (7.9%) and national (6.5%) levels. City wealth and income indicators are above state and national rates.
SOLID DEBT SERVICE COVERAGE
Pledged revenues available for TABs senior debt service are net of the 20% housing set-aside, basic aid and SB2557 administrative and service fees. Various revenue sharing payments and reimbursement agreement obligations with the city are subordinate to the TABs, including 2010 lease revenue bonds issued by a city authority to fund city hall improvements.
Coverage of TABs MADS remains solid despite prior year tax base contraction. Fiscal 2014 revenues (net of the 20% housing set-aside, basic aid and SB2557 administrative and service fees) cover MADS by 2.95x. MADS coverage including subordinate lease debt obligations is 1.38x. Coverage stands up well to various Fitch-designed stress scenarios, including the loss of the top 10 taxpayers. A TAV decline of 36% would be required to reduce TABs MADS coverage to 1.0x.
The SA made full and timely calendar year 2013 debt service payments from available funds. Funding for the upcoming March 2014 debt service payment has been approved under the recognized obligation payment schedules (ROPS). The SA retains access to housing set-aside revenues no longer restricted to this purpose following the dissolution of redevelopment. Fitch's methodology conservatively excludes such revenues from coverage calculations, as they are not pledged to debt service payment on non-housing TABS, but they appear to be available to the SA should it require them for such purposes.
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
U.S. Local Government Tax-Supported Rating Criteria