Bangkok--25 Oct--Standard & Poor's
California's June 2011 proposed bills that could dissolve redevelopment agencies (RDAs)--and the subsequent challenge to this legislation in the state supreme court--have put California RDAs under the microscope, says a report titled "Assessing The Credit Impact Of California's Redevelopment Agency Legislation" published today by Standard & Poor's Ratings Services.
We believe the credit impact of the new law related to dissolution of the RDAs falls primarily on specific agencies without adequate maximum annual debt service (MADS) coverage or liquidity and on agencies subject to large principal payments in the near term.
Standard & Poor's recently placed several ratings on California RDA tax allocation bonds (TABs) with these characteristics on CreditWatch negative; however, Standard & Poor's maintains stable outlooks on the majority of its ratings on California RDA TABs. (See "16 Ratings On Various California Redevelopment Agencies' Tax Allocation Bonds Placed On CreditWatch Negative" published Oct. 14, 2011, on RatingsDirect on the Global Credit Portal.)
"Although we recognize the legislation, if upheld, presents possible risks related to restrictions in agency resources and activities as well as the timing of revenue allocation, we do not expect either piece of legislation to affect overall credit quality for the majority of the bonds we rate that have good coverage of existing debt service by pledged revenue and pledged reserves," said Standard & Poor's credit analyst Sussan Corson.
The dissolution legislation states its intent to honor revenue pledges associated with enforceable obligations, including bonds, of the former RDAs. Furthermore, where the dissolution legislation creates timing-of-payment hurdles in some areas, we believe strong coverage by pledged revenue, pledged investment-grade reserve funds, and attentive administration should overcome these potential pitfalls. We also expect that future legislative efforts are likely to remedy these timing issues.
In our opinion, the recent legislative changes as well as the potential for multiple outcomes and disrupted timelines associated with the pending court case will require good debt service coverage, adequate pledged liquidity, and diligent attention of payment details by successor agencies, oversight boards, and county auditor-controllers.
"While we recognize there is uncertainty in the short term, we assume legislative fixes will address questions related to refunding and administration of existing debt, timing of payments, pledged revenues, and flow of funds if the dissolution legislation is upheld," said Ms. Corson.
The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to
[email protected]. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
Media Contact:
Ola Fadahunsi, New York (1) 212-438-5095,
[email protected]
Analyst Contacts:
Sussan Corson, New York (1) 212-438-2014