In the course of routine surveillance, Fitch Ratings upgrades to 'BBB+' from 'BBB' $7.1 million San Diego Redevelopment Agency, California's (the agency) $6.6 million outstanding Horton Plaza Redevelopment Project tax allocation housing set aside bonds, series 2003C (taxable) and affirms the 'BBB+' rating on the agency's $6.3 million outstanding Horton Plaza Redevelopment Project subordinate tax allocation bonds (TABs), series 2003A. In addition, Fitch assigns a 'BBB+' rating to the agency's outstanding $13.1 million Horton Plaza Redevelopment Project subordinate TABs, series 2000. The Rating Outlook is Stable.
The 'BBB+' ratings reflect the strong debt service coverage, expiration of the period to issue debt, high profile and important downtown location as well as the high taxpayer concentration, very small project area and moderate tax base decline. The upgrade of the housing set aside bonds to 'BBB+' reflects the higher than projected debt service coverage which is now comparable to the non-housing debt service and no plans to leverage pledged revenues further. The key rating driver is maintaining low leverage and stable property values to preserve good debt service coverage levels in spite of pressures on real estate prices.
Debt service coverage by pledged revenues of the combined senior and subordinate TABs debt service (the senior lien is closed and not rated by Fitch) is strong at 2.1 times (x) based on projected fiscal 2010 revenues. Combined senior and subordinate lien debt service is essentially level. Debt service coverage of the housing set aside bonds is projected at 2.0x for fiscal 2010. Fitch views this high coverage level as a mitigating factor to the significant taxpayer concentration. Coverage remains sufficient under stress cases, including the full loss of the largest taxpayer. Issuance of parity bonds is very unlikely as it would require agency approval to amend the project area, and current expectations are for no additional leverage through at least fiscal 2013.
The 41.5 acre project area is located in the middle of San Diego's waterfront, gas lamp and hotel and shopping district and is dominated by a large shopping mall owned and operated by Westfield. Other top taxpayers include hotels, office buildings and other retail space. The top 10 taxpayers represent a very high 74% of total assessed valuation (AV) in fiscal 2009. AV dropped 7% to $812 million in fiscal 2010 from a year prior bringing the average annual growth rate to 5.3% since fiscal 2002 and reducing coverage just slightly. Appeals remain moderate; the current outstanding appeals have a disputed amount of $2.6 million.
San Diego is the second largest city in California, with a population of approximately 1.3 million. While the city has diverse employment and above-average socio-economic characteristics, unemployment is on the rise, increasing to 10.4% in August 2009 from 6.4% in August 2008, comparable to the county rate of unemployment but below the state's jobless rate of 12.2% in August 2009.
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