In the course of routine surveillance, Fitch Ratings affirms the 'AA-' rating on the South Orange County Public Financing Authority's (the authority) $47 million special tax senior lien revenue refunding bonds series 2003A and $33.5 million special tax senior lien revenue bonds series 1994A. The Rating Outlook is Stable.
Bonds were sold to help finance public improvements in Community Facilities District 88-1 (Aliso Viejo) (the district), and are secured by a per-parcel special tax collected by the county along with regular property taxes. The district is part of a master-planned community located in Aliso Viejo (the city), in the southwesterly portion of Orange County in southern California. It comprises approximately 2,990 acres, or 45% of the city's area, and reportedly contains the vast majority of the city's residential properties.
The 'AA-' rating reflects the district's substantial tax-raising flexibility, large size and strategic location, essentially complete buildout, strong debt service coverage with a closed lien, and the collection guarantee of the county's Teeter program. Credit concerns include moderate taxpayer concentration, and a local market that appears particularly vulnerable to future housing market turbulence. Fitch expects that despite this turbulence, the district will maintain strong debt service coverage based on the authorized maximum special tax (MST).
Debt service coverage with fiscal 2009 MST revenues is a sound 2.3 times (x) maximum annual debt service (MADS) on senior lien bonds, and 1.8x MADS on all local obligations (inclusive of senior and junior lien bonds). The actual levy has consistently been less than 50% of the MST. The authority has independent authority to increase the levy up to the MST. The county's Teeter program ensures the authority 100% of the district's levy each year, regardless of tax delinquencies.
The top 10 taxpayers accounted for a moderately high 20% of the district's actual special tax levy in fiscal 2009. The district holds up well to stress scenarios reflecting loss of revenues from these taxpayers, as well as from the small number of undeveloped parcels. Mortgage data for non-agency loans in the city (provided by LoanPerformance) indicates relatively high exposure to non-agency loans as a whole, and negative amortization loans in particular. While Fitch believes this may lead to increased pressures on the housing market over the next one to two years, the concern is offset by the county's Teeter program and the district's substantial tax-raising capacity. Direct debt levels for the district are moderate at $2,112 per capita and 1.35% of market value, while amortization is rapid with all debt retired by 2016. No additional bonds are anticipated.
Note: Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework'.) At this time, Fitch is deferring its final determination on municipal recalibration. Fitch will continue to monitor market and credit conditions, and plans to revisit the recalibration in the first quarter of 2009.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Fitch Ratings, New York
Eric Kim, +1-212-908-0527
Karen
Ribble, +1-415-732-5611 (San Francisco)
Cindy Stoller,
+1-212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com