Fitch Affirms Newman Redevelopment Agency, CA's TABs at 'BBB+'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the following tax allocation bonds (TABs) for Newman Redevelopment Agency, California (the RDA):

--$2 million TABs, series 1997, at 'BBB+'.

The Rating Outlook is Stable.

SECURITY

The bonds are backed by a senior lien on redevelopment project area tax increment revenues above the 1993 base year collected within the sole project area, and includes the 20% set-aside for low and moderate income housing. Additionally, the bonds are secured by a cash-funded debt service reserve fund.

KEY RATING DRIVERS

ROBUST DEBT SERVICE COVERAGE: Fitch-estimated maximum annual debt service (MADS) coverage in fiscal year 2015 is strong at 4.65x and responds well to Fitch-designed stress scenarios.

HIGH TAX BASE CONCENTRATION: The relatively small project area tax base is very concentrated, and risk to revenue volatility is high given a low incremental value (IV) to base year ratio.

STRONG ASSESSED VALUE CUSHION: The TABs are characterized by a strong assessed value (AV) cushion (defined as the percentage of one-time AV decline that the tax base is able to withstand while maintaining 1x maximum annual debt service [MADS] coverage) of roughly 48%. AV continued its trend of posting solid gains in fiscal year 2015.

LIMITED LOCAL ECONOMY: The city of Newman is primarily an agricultural community, with economic activity centered upon agricultural product processing. City wealth levels are below average and unemployment remains elevated.

POSITIVE ASPECT OF DISSOLUTION: Fitch considers all TAB liens to be closed, as successor agencies (SAs) are not permitted to issue new money TABs. The inability to further leverage is a positive credit consideration.

RATING SENSITIVITIES

TAX BASE STABILITY: The rating is sensitive to material declines in the tax base and the stability of the leading taxpayer who accounts for nearly 40% of IV. Positive rating action is not anticipated in the near to intermediate term given the project area's economic characteristics, small size, and high concentration risk.

CREDIT PROFILE

The city of Newman, with a 2013 estimated population of 10,639, is located in the western section of Stanislaus County, approximately 40 miles east of Merced.

CONCENTRATED PROJECT AREA / RECOVERING TAX BASE

The project area is small at 605 acres but encompasses essentially all of the city's commercial area and a substantial portion of its residential area, totaling one-third of the city's AV. Commercial and industrial concerns each comprise around one-quarter of the project area tax base, with residential properties accounting for the remainder.

Taxpayer concentration is very high. The leading project area taxpayer, Saputo Cheese USD Inc. represents a sizeable 23% of AV and 38% of IV. The top 10 taxpayers are also quite concentrated at 34% of AV and 56% of IV, although they have moderated somewhat compared to the prior year. The IV/base year value is a low 153%, contributing to a high degree of revenue volatility.

AV recovery accelerated in fiscal 2015, posting a solid gain of 13.4% compared to 5.2% the prior year, primarily due to recovery on the commercial side. Fitch believes AV growth will continue but at a more moderate pace, given ongoing improvement in housing market values and some residential development taking place within the project area.

COVERAGE ENHANCED BY AV GAINS

Fiscal year 2015 MADS coverage remains strong at 4.65x.

Fitch estimates AV would need to decline by 48% for MADS coverage to reach 1.0x. This compares quite favorably to the project area's cumulative recessionary AV loss of 22%. Coverage stands up well to various Fitch-designed stress scenarios, including the loss of the top 10 taxpayers and no AV growth.

Pledged tax increment revenues are derived from growth in the tax base above the fiscal 1993 level and include the 20% set-aside for low and moderate income housing. Tax-sharing agreements provide for subordination of pass-through payments.

WEAK LOCAL ECONOMY

The city's narrow economy is focused on agriculture and food processing. Housing values declined significantly during the recession, although recovery is evident. Stanislaus County's April 2015 unemployment rate of 9.8% remains significantly higher than the state and U.S. rate of 6.3% and 5.4%, respectively. The unemployment rate in the city also remains elevated at 9.4% in April 2015, according to state statistics; however, this has come down significantly from the 18.5% rate reported a year prior. City wealth levels are below state and national averages.

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 the 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=986567

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=986567

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
Nicole Wood
Director
+1-212-908-0735
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Karen Ribble
Senior Director
+1-415-732-5611
or
Committee Chairperson
Michael Rinaldi
Senior Director
+1-212-908-0833
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Nicole Wood
Director
+1-212-908-0735
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Karen Ribble
Senior Director
+1-415-732-5611
or
Committee Chairperson
Michael Rinaldi
Senior Director
+1-212-908-0833
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com