Fitch Rates Oakland-Alameda County Coliseum Authority, CA's $127MM Lease Revs 'AA-'; Outlook Stable

Fitch Ratings assigns a rating of 'AA-' to the following Oakland-Alameda County Coliseum Authority, California (the authority) bonds:

--$127 million lease revenue refunding bonds series 2012.

In addition, Fitch takes the following rating actions on Alameda County (the county):

--Implied unlimited tax general obligation (ULTGO) 'AA+' rating assigned;

--$534.7 million Alameda County Joint Powers Authority (CA) various lease revenue bonds affirmed at 'AA';

--$45.7 million California Infrastructure and Economic Development Bank (I-Bank) revenue bonds, series 2004 (North County Center for Self-Sufficiency Corporation Project) affirmed at 'AA'.

The Rating Outlook is Stable.

The bonds are scheduled to price on May 16, 2012 via negotiated sale. Proceeds will be used to refund outstanding floating rate debt as fixed rate.

SECURITY

The bonds are secured by city of Oakland (the city) and Alameda county lease rental payments for use of the Oakland Coliseum Complex (a 111-acre site which includes the stadium), subject to abatement, and are supported by a covenant to budget and appropriate lease payments annually.

The obligations of the city and county are joint and several, and each has pledged to make full lease rental payments in the event of insufficient payment by the other. The bonds are additionally secured by a cash-funded debt service reserve.

KEY RATING DRIVERS

COUNTY RATING DRIVES CREDIT QUALITY: The joint and several obligation to pay results in a rating that is based on the strongest link -- in this case the county. The county's 'AA+' ULTGO rating reflects high reserve levels, a large diverse economy with a resilient tax base and access to the greater San Francisco Bay Area employment market, as well as a manageable debt burden.

NON-ESSENTIAL ASSET, UNCERTAIN FUTURE: The leased asset is a professional sports stadium originally constructed in 1964, with substantial improvements completed in 1996. The stadium's chief tenants, the Oakland Raiders football team and Oakland Athletics baseball team, have repeatedly expressed interest in relocating to newer facilities and have made no long-term commitments to the authority. The Raiders and Athletics current agreements with the authority expire at the end of their 2013 and 2014 seasons, respectively.

ABOVE-AVERAGE ABATEMENT RISK: The age of the stadium and uninsured seismic risks contribute to above-average abatement risk. In addition, the stadium operations (prior to lease obligations) generate substantial annual operating losses that are offset by city and county general fund contributions. The poor financial performance reduces the stadium's intrinsic value to the city and county, as well as their incentive to repair and rebuild the facility in the event of abatement.

INCENTIVE TO APPROPRIATE: Fitch believes abatement risk is balanced by the county's expected future dependence on appropriation debt for its capital needs. Fitch believes the county's desire to maintain market access at the advantageous rates suggested by its strong general obligation rating provides significant incentive to make lease rental payments regardless of abatement.

LENGTHY PAYMENT HISTORY; AFFORDABLE OBLIGATION: The city and county have funded stadium debt service and operating losses for more than 15 years, and have ample budgetary capacity to continue to make payments through maturity.

CREDIT PROFILE

COUNTY CREDIT PROVIDES BASIS FOR RATING

The 'AA-' rating is two notches below the county's 'AA+' implied GO rating because Fitch views the risks as somewhat greater than in a typical California abatement lease. Fitch believes abatement risk is above-average for this non-essential asset, in part due to recurring operating losses that would reduce the city and county's incentive to rebuild in the event of damage to the facility.

The use of the county's rating as the basis for the authority's rating arises from the joint and several commitment to make full lease rental payments. As typical for California lease transactions, the city and county have each covenanted to budget and appropriate their respective shares of lease rental payments annually for the life of the bonds. The joint and several commitment further obligates each party to make supplemental appropriations and fund any payment insufficiency by the other.

NON-ESSENTIAL ASSET

The Oakland Coliseum is an aging professional sports facility that is approaching its fiftieth anniversary. Its two chief tenants, the Oakland Raiders football team and Oakland Athletics baseball team, have each sought to relocate in recent years, and are free to do so after the completion of existing short-term leases. In addition, stadium operations generate operating losses that have ranged from $9 million to $12 million annually in recent years, requiring ongoing city and county general fund contributions in addition to lease rental costs.

ABOVE-AVERAGE ABATEMENT RISKS

Like most California lease credits, the city and county's obligation to make lease rental payments is subject to abatement. Property and rental interruption insurance helps to mitigate abatement risk, but seismic damage is typically excluded from such coverages due to limited commercial availability. Seismic risks for the stadium, while unknown, must be presumed material as a result of the facility's age and general location.

The non-essential nature of the stadium, in combination with recurring operating losses and potential lack of property insurance coverage, reduces city and county incentives to rebuild or repair the facility following an abatement event. Continued lease rental payments in such circumstances would rely instead on the commitment of the city and county to bondholders rather than underlying legal provisions.

City and county management have expressed the strong commitment to make all scheduled lease rental payments regardless of future events, but their legal obligation to do so could be greatly diminished upon abatement.

DEMONSTRATED COMMITMENT TO PAY; AFFORDABLE BURDEN

Fitch believes abatement risks are mitigated by the city and county's longstanding commitment to the stadium and the county's reliance on appropriation debt for future capital spending, providing additional incentive to honor its commitments. Initial plans for the stadium's renovations relied on the funding of debt service from projected football revenues, but shortfalls in such projections have required ongoing city and county support since 1995.

Debt service and operating costs for the Coliseum continue to be budgeted and appropriated annually, and the city and county have actively sought to retain the facility's professional sports teams despite substantial recurring losses from such activities. Full funding by the county of all lease payments and operating subsidies, if required, would remain affordable at approximately 1% of 2011 general fund spending.

STRONG UNDERLYING CREDIT

The city and county participate in the broad San Francisco Bay Area regional economy and benefit from its diverse labor market, high income levels, and strong tax base. Both the city and county have maintained strong general fund reserves despite recent fiscal pressures. The city ended fiscal 2011 with an unrestricted general fund balance (the sum of committed, assigned, and unassigned fund balance) at 21% of general fund spending while the county's unrestricted fund balance rose to 41%. The total outstanding debt for the Coliseum represents less than 15% of direct debt for the city and county, respectively, and should continue to be manageable for both.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

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, and National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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