Bangkok--29 Jul--Standard & Poor's
Standard & Poor's Ratings Services assigned its 'A-' long-term rating, and stable outlook, to San Diego Redevelopment Agency, Calif.'s tax-exempt series 2010A and taxable series 2010B nonhousing set-aside tax allocation bonds, issued for the City Heights Redevelopment Project.
At the same time, Standard & Poor's placed its 'BBB+' long-term rating on the agency's existing senior bonds, issued for the City Heights Redevelopment project area, on CreditWatch with positive implications.
"We base the CreditWatch placement on the existing bonds our view of the project area's credit characteristics and the agency's covenant to effectively close the senior lien upon issuance of the series 2010A and B bonds, which we expect will preserve strong future debt service coverage on the senior bonds," said Standard & Poor's credit analyst Sussan Corson.
The 'A-' rating reflects our opinion of the following credit characteristics:
A diverse project area with good freeway access and is located within two miles of downtown San Diego ('A' general obligation rating);
Historical project area assessed valuation (AV) growth that improved the volatility ratio, although it still remains high;
Good current 2.6x coverage maximum annual debt service (MADS) based on the fiscal 2011 tax roll; and
A fully cash-funded debt service reserve.
Partially offsetting factors in our view are the following:
Recent cumulative 13% decline in AV in fiscals 2010 and 2011, with a fiscal consultant projecting further declines in AV in fiscal 2012;
A high base year-to-total AV volatility ratio of 0.48 in fiscal 2011, reflecting sensitivity in tax increment revenues due to changes in overall AV.
An effective additional bonds test (ABT) of 1.4x MADS under a two-prong test given the project area's current volatility ratio and additional protection from significant additional debt issuance due to subordinate tax-sharing payments.
The stable outlook reflects Standard & Poor's expectation that a diversified tax base and current strong MADS coverage should provide some protection against potential further declines in AV as estimated by agency officials. The outlook also reflects our expectation that an ABT that accounts for the project area's revenue volatility sensitivity somewhat mitigates the risk of significant debt issuance given the project area's current 0.5 volatility ratio.
The bonds are secured by tax increment revenues, net of set asides for low- and moderate-income housing and certain tax-sharing payments to underlying agencies, generated by the San Diego Redevelopment Agency's City Heights Project Area.
Media Contact:
Ana Sandoval, New York (1) 212-438-5095,
[email protected]
Analyst Contacts:
Sussan Corson, New York (1) 212-438-2014
Misty Newland, San Francisco (1) 415-371-5073