Fitch Rates Oakland, California's $155MM TRANs 'F1+'

SAN FRANCISCO--(BUSINESS WIRE)--Fitch rates the following City of Oakland, California 2008-2009 tax and revenue anticipation notes (TRANs) 'F1+':

--$70,000,000 series A;

--$85,000,000 series B (taxable).

The series A notes will be sold competitively on or about June 30 and the series B through negotiation on or about June 25, 2008 and are expected to be one year in duration.

Fitch's 'F1+' rating is the highest for short-term debt and reflects sound coverage of note principal and interest by available revenue and of repayment set-asides made in April and June, as well as the sufficient cushion provided by borrowable resources at note maturity. Also, the projected cash flow holds up well to stress scenarios that envision weaker tax revenue as well as higher labor costs.

Oakland's 'A+' general obligation rating also is a factor in rating the notes. The long-term rating reflects the city's above-average unreserved general fund balances, and adherence to many conservative financial management policies. While the city has benefited from very healthy assessed valuation (AV) growth, the area's property market slowdown will create financial pressure given the importance of property tax revenues. Fitch views the city's tax revenue projections for fiscal 2009 as optimistic. Debt is moderate-to-high and the city has a sizable unfunded actuarial accrued liability in its pension system which the city will need to start paying down in fiscal 2012.

The TRANs are secured by unrestricted revenue projected to be received in fiscal 2009, which totals $789.5 million and covers TRAN principal and interest a high 4.85 times (x). The city covenants to set aside one-half of the principal payment in April, and the second half, plus interest, in June. These set-asides are covered 2.2x and 1.74x, respectively. Also, the city consistently has about $75 million in funds at year end that can be borrowed from to meet note repayment if the cash flow varies significantly from the forecast.

Oakland's projected cash flow continues to show strength under three stress scenarios, including two that project property, sales, business license, and real estate transfer taxes at one-half of the growth budgeted by the city. Under a more severe test, where tax growth is slowed by the same amount and salaries are increased, negative month-end balances result but are within the amount that can be covered by the borrowable funds. Fitch views these stress scenarios as important given the optimistic assumptions regarding tax gains and the ongoing labor negotiations with all city unions except police.

This TRAN issuance is similar to Oakland's sale for fiscal 2008, with the series A notes utilized to offset the uneven nature of property and other tax revenue and the series B proceeds used to make the city's annual pension payment early in the fiscal year, receiving a discount on the payment.

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