Fitch Rates San Mateo County Transit District, CA's Sales Tax Revenue Bonds 'AA+'

SAN FRANCISCO--()--Fitch Ratings assigns an 'AA+' rating to the following bonds for the San Mateo County Transit District, California (the district):

-- $205.3 million limited tax bonds refunding 2015 series A; and

-- $39.7 million limited tax bonds refunding 2015 series B (federally taxable).

The Rating Outlook is Stable.

SECURITY

The bonds are payable from the district's 0.5% sales and use tax, net of administrative fees, levied within the county in perpetuity.

KEY RATING DRIVERS

GOOD COVERAGE; CLOSED LIEN: The 'AA+' rating reflects good coverage of maximum annual debt service (MADS) with no ability to issue parity obligations, apart from refundings. Pledged sales taxes experienced moderate declines during the last recession but have rebounded strongly and are now well above pre-recession peaks.

STRONG ECONOMY AND TAX BASE: The county's economy is large and diverse with ongoing employment growth and investment, particularly in the technology sector. Wealth and income indicators are high relative to national averages and tax base growth has been robust in recent years.

MIDRANGE OPERATIONAL/FINANCIAL METRICS: The district's operational and financial metrics are midrange relative to peer transit credits.

RATING SENSITIVITIES

OPERATING PERFORMANCE: A material decline in the financial or operating performance of the district could result in downward rating pressure.

CREDIT PROFILE

The district (also known as SamTrans) is an independent public agency primarily responsible for mass transit operations within San Mateo County. Core operations include bus and paratransit services; the district also provides administrative support and a share of funding for CalTrain, a commuter rail line operating between San Jose and San Francisco. San Mateo County has a total population of approximately 750,000 and includes an urban core between San Francisco and Santa Clara County, as well as more rural areas along the Pacific coast.

STRONG AND DIVERSE ECONOMY

San Mateo County's economy is large and diverse, with notable strengths in technology and biotechnology. Major employers include the headquarters of Oracle, Facebook, and Genentech, and the county has benefited from substantial venture capital and private equity investments in smaller firms as well.

The strength of the county's economy is reflected in its employment levels, which stood 11.9% above pre-recession peaks as of December 2014. Year-over-year employment growth was 3.6% for this same period and unemployment fell to a very low 3.5%, about half the rate for the state and well below the national average.

Wealth levels for the county are about 140% to 160% of state and national averages, and educational attainment levels are similarly elevated. The county's strong employment and wealth levels have also contributed to a robust tax base. Taxable assessed values saw only one year of modest declines during the last recession and have grown by a cumulative 17% in the four subsequent years. Year-over-year home price gains of 8.8% as of December 2014, as reported by Zillow.com, point to likely continued tax base growth.

The county's sales tax base has expanded steadily over the last four years following a 15% decline between 2008 and 2010, at the height of the recession. Over the past decade sales taxes rose at a compounded annual growth rate of 2.9%. Fitch anticipates ongoing growth in sales taxes over the long-term, although short-term declines may recur during future economic contractions.

GOOD COVERAGE; CLOSED LIEN

Fiscal 2014 sales tax revenue of $77.6 million provides good coverage of MADS at 3.5x. Ongoing coverage at or above this level is supported by the district's legal inability to issue parity debt other than refunding obligations. Coverage is resistant to Fitch-designed stress scenarios; sales tax receipts would have to fall by 71% in one year, or 7% per year through maturity, to reduce MADS to 1.0x.

MIDRANGE OPERATIONAL/FINANCIAL METRICS

Fitch views the system's operational metrics as mixed and midrange overall. The system's pricing framework is weak, with a low farebox recovery ratio of 18%. This weakness is less of a credit concern than it might be if operations were reliant on system-generated revenue. The system's dependence on sales tax revenues for ongoing operations results in low correlation between operations and overall revenue performance. Fitch views positively the system's infrastructure renewal and replacement framework, with no new capital borrowing required.

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 and Zillow.com.

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=981132

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Contacts

Fitch Ratings
Primary Analyst
Stephen Walsh
Director
+1-415-732-7573
Fitch Ratings, Inc.
650 California Street
San Francisco, CA 94108
or
Secondary Analyst
Scott Monroe
Director
+1-415-732-5618
or
Tertiary Analyst
Matthew Chou
Analyst
+1-415-732-7576
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations
Elizabeth Fogerty, New York, 1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Stephen Walsh
Director
+1-415-732-7573
Fitch Ratings, Inc.
650 California Street
San Francisco, CA 94108
or
Secondary Analyst
Scott Monroe
Director
+1-415-732-5618
or
Tertiary Analyst
Matthew Chou
Analyst
+1-415-732-7576
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations
Elizabeth Fogerty, New York, 1 212-908-0526
elizabeth.fogerty@fitchratings.com