Bangkok--20 Apr--Standard & Poor's
Standard & Poor's Ratings Services lowered its long-term and underlying ratings on Hercules Redevelopment Agency, Calif.'s series 2005 and 2007A tax allocation revenue bonds to 'CCC' from 'BB'. Standard & Poor's also revised its outlook on the bonds to negative from stable.
"These rating actions reflect what we view the agency's inadequate debt service coverage by pledged net tax increment revenue after increases in pass-through payments and housing set-aside revenue, its current negative cash position, and debt service reserves funded with sureties by Ambac Assurance Corp.," said Standard & Poor's credit analyst Sussan Corson.
The ratings reflect our opinion of:
Significant drops in assessed value (AV) in the agency's project area in the past three years, which have led to declining tax increment revenue;
Nonhousing-secured series 2005 and 2007A bonds' debt service reserve being funded by sureties from Ambac; and
Continued concentration in the largest taxpayer, Bio-Rad Laboratories Inc. (BBB/Stable), which makes up 14% of fiscal 2011 incremental AV.
The series 2007A and series 2005 bonds are secured by tax increment revenues collected from the agency's merged project area net of set-asides for low- and moderate-income housing and certain senior pass-through developer payments.
The negative outlook reflects what we view as the agency's overspending, which has led to negative cash balances, and our expectation that pledged revenue will be insufficient to cover nonhousing debt service obligations after recent significant AV declines in the project area. The outlook also reflects the agency's need to borrow from unpledged housing revenues to pay nonhousing debt service and the city's already stressed general fund to meet upcoming scheduled debt service payments in August 2011.
The project area is in the western portion of Hercules, adjacent to the San Francisco Bay, and covers a former industrial area, including a central portion historically centered on explosives production. The merged project area covers 826 acres and consists of two areas--the original Dynamite project area and an amendment area, project area No. 2--each with a different base-year AV and different pass-through agreements. The merged project area is predominately residential (64% of fiscal 2011 AV), with the remainder made up primarily of industrial (16%), government (11%), and commercial (6%) uses.
RELATED CRITERIA AND RESEARCH
USPF Criteria: Special-Purpose Districts, June 14, 2007
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
Edward Sweeney, New York (1) 212.438.6634,
[email protected]
Analyst Contacts:
Sussan Corson, New York (1) 212-438-2014
Lisa Schroeer, Charlottesville (1) 434-220-0892