Fitch Ratings has affirmed and removed from Rating Watch Negative the following tax allocation bonds (TABs) for the San Diego Redevelopment Agency, CA (the RDA):
--$16 million outstanding North Park Redevelopment Project TABs series 2000, 2003A and 2003B at 'A+';
--$158 million Centre City Redevelopment Project subordinate TABs series 1999C, 2000A & B, 2001A, 2003A, 2004A and 2006A at 'AA-';
--$139 million Centre City Redevelopment Project tax allocation housing bonds (taxable) series 2004C & D, 2006B and 2008A at 'AA-' ;
--$20.5 million Centre City Redevelopment Project subordinate parking bonds series 2003B at 'A';
--$5.2 million City Heights Redevelopment Project housing set-aside TABs series 2003A and 2003B at 'A+' ;
--$15 million Horton Plaza Redevelopment Project subordinate TABs series 2000 at 'A-';
--$6.3 million Horton Plaza Redevelopment Project subordinate TABs series 2003A at 'A-';
--$8 million Horton Plaza Redevelopment Project tax allocation housing bonds series 2003C (taxable) at 'A-'.
The Rating Outlook is Stable.
SECURITY
Centre City:
The subordinate TABs are special obligations payable from Centre City project area gross tax increment revenues. This is less the 20% housing set aside, statutory pass-through payments and the county's administrative fee and subordinate to senior lien bonds (approximately $30 million outstanding, not rated by Fitch).
The tax allocation housing bonds are special obligations payable from the Centre City project area's 20% of gross revenues set aside for housing, net of the county's administrative fee.
The subordinate parking bonds are secured by operating revenues (net of operation and maintenance costs) of the parking facilities and a pledge of the City of San Diego parking meter revenues (which is subordinate to senior parking revenue bonds, not rated by Fitch). The bonds are also secured by a third lien pledge of tax increment revenue up to the parking bonds' maximum annual debt service (MADS).
North Park:
The senior tax allocation bonds are special obligations payable from North Park project area gross tax increment revenues. This is less the 20% housing set aside, statutory pass-through payments and the county's administrative fee. Additional security is provided by the ability of the 20% housing set-aside to pay 24.5% of senior lien debt service.
City Heights:
The senior TABs are special obligations payable from North Park project area gross tax increment revenues, less the 20% housing set aside, statutory pass-through payments and the county's administrative fee. Additional security is provided by the ability of the 20% housing set-aside to pay 24.5% of senior lien debt service.
Horton Plaza:
The subordinate TABs are special obligations payable from Horton Plaza project area gross tax increment revenues, less the 20% housing set aside, subordinate to senior lien bonds.
The tax allocation housing bonds are special obligations payable from the Horton Plaza project area 20% of gross revenues housing set-aside revenues.
KEY RATING DRIVERS
PROGRESS ON AB1X26 IMPLIMENTATION: The City has been recognized as a successor agency (SA) to the former San Diego Redevelopment Agency (the Agency). A recognized obligation payment schedule (ROPS), including 2012 debt service on the bonds, has been approved by the county and the state. The SA has received sufficient payments to cover the debt service included in the ROPS.
IMPLICATIONS OF AB 1484: The governor signed this trailer bill to the state's fiscal 2013 budget on June 27, 2012. The bill includes what Fitch believes are improvements to the ROPS approval process and other procedures going forward. However, it required repayment by many SAs of property tax distributions from December 2011 and January 2012 that the state believes should have been directed to other taxing entities. The SA reports that it made the required repayment and that sufficient funds remain for debt service payments.
REVENUE COMMINGLING ACROSS PROJECT AREAS: Tax increment revenues for 2012 were received on a commingled basis without detail across project areas. The SA applied revenues to debt service and respected senior/subordinate indenture provisions. Funds received were combined with available reserves to meet debt service in March and September 2012. The SA has requested guidance from the DOF and county on how to maintain project area details in the future.
Historically, gross tax increment for all project areas has provided significant coverage of TAB debt service and marginal coverage of all debt service including ROPS approved loans and notes payable. If future revenues remain commingled, it may be appropriate to evaluate coverage on a commingled basis rather than by project area. Combined coverage levels will be highly reflective of the Centre City project area. Reason being is the project area generated 65% of the total agency tax increment revenues and accounts for 68% of total TAB debt outstanding.
CREDIT PROFILE:
In February 2012, the City of San Diego became the Successor Agency (SA) for the Redevelopment Agency. The City's Office of the Mayor is charged to coordinate all former RDA activities and maintain funds separate from City funds. The SA has received ROPS approval for the January-June 2012 and July-December 2012 periods which included TAB debt service for 2012. Prior to dissolution, the Agency received sufficient funds from San Diego County in January 2012. Together with available cash reserves, the funds were used to fund debt service payments for March and September 2012.
The SA has received approved ROPS for 2012 but received limited funds from the county given the funds already received in January 2012. The SA expects to receive sufficient funds in the January-June 2013 and July-December 2013 ROPS to cover all SA TAB debt service requirements for 2013 (approximately $57 million). SA reserve balances are significant and likely to be directed to be used for future debt service payments or transferred to another governmental entity.
To date the SA has received commingled funds (housing and non-housing increment and project areas are not separately identified) to apply to its ROPS. As such the SA anticipates first applying funds to ROPS approved TAB debt service and expects to continue to respect various senior and subordinate lien priorities. While the SA is treating funds as commingled and project areas as merged, they have asked the DOF for guidance and for project area detail information. Fitch does not rate all project areas given the significance of Centre City to overall revenues and debt. That said, Fitch believes it is able to analyze appropriately the economics of the overall San Diego RDA. All Fitch-rated TABS benefit from a cash-funded debt service reserve funded at the lower of MADS, 125% AADS or 10% outstanding principal.
PROJECT AREA CREDIT PROFILES:
NORTH PARK:
SOUND DEBT SERVICE COVERAGE LEVELS: Annual debt service coverage for the senior TABs has exceeded 3.40 times (x) the past three years, including coverage of 4.34x in fiscal 2011. All-in coverage including subordinate TAB debt service is also sound at over 2.3x the past two years and estimated to be 2.49x for 2011. Under various Fitch designed stress scenarios, coverage levels of senior TAB maximum annual debt service are forecasted to remain strong.
SOLID PROJECT AREA TAX BASE GROWTH: While small at only 555 acres, the project area experienced significant growth between 2002 and 2009 which increased AV by 100% to a peak of $1.17 billion in 2009. Despite recent assessed valuation (AV) declines of 4.6% or 7.3% IV in total over the two years, the project area experienced small growth of 0.7% in 2012 to an estimated $1.1 billion. The incremental value (IV) to base year AV ratio remains good at 1.65x. Estimated pending AV appeals are moderate at 7% of total AV and not expected to materially negatively impact AV or coverage.
DIVERSE TAXPAYERS WITH CONCENTRATED LAND USE: Located five miles from San Diego's downtown next to Balboa Park, the project area land use is concentrated with residential properties a high 74% of AV. Top ten taxpayers are diverse at a low 10.9% of IV in 2011, with the leading taxpayer a low 1.09%.
CENTRE CITY:
SOUND DEBT SERVICE COVERAGE LEVELS: Annual debt service coverage for both the subordinate TABs and subordinate parking bonds have exceeded 3.00 times (x) the past three years, including coverage of 3.73x and 3.31x respectively in fiscal 2011. Housing TAB annual debt service coverage has been over 1.74x over the past three years and 1.65x in fiscal 2011. Under zero AV growth scenarios for each, coverage levels of maximum annual debt service are forecasted to remain sound and all bonds perform well under various Fitch stress tests.
MATURE PROJECT AREA TAX BASE: The project area experienced significant growth between 2004 and 2009 which increased AV by 150% to a peak of $13.2 billion in 2009. Assessed valuation (AV) has declined modestly (7.5% in total over the past three years to 2012). However, the fully-developed 1,400 acre project area tax base remains sizable at $12.67 billion with a very high incremental value (IV) to base year AV ratio in fiscal 2011 at over 9.6x.
DIVERSE PROJECT AREA TAXPAYERS: Located in the core of San Diego's downtown, the project area includes waterfront locations and diverse economic activities. Among them are a government center, financial and legal services, culture, performing arts, visitor and tourism industries, mass transit, air and sea transport and a Major League Baseball (MLB) stadium. Based on most recently available data, top ten taxpayers are moderately concentrated relative to other special tax districts at 22% of IV in 2011, with the leading taxpayer a low 3.2%.
PARKING REVENUE BONDS: While the indenture permits use of tax increment to cover only 1x debt service on a third-lien basis, the base from which this revenue is drawn generated coverage of over 3.20x 2008-2011. The approved 2012 ROPS included debt service for the parking revenue bonds. Parking revenue bonds are also supported by a second lien pledge on parking garage revenue at two facilities as well as parking meter revenue appropriated by the City of San Diego. These revenues have historically been very strong, generating over $3 million annually and individually providing over 2.0x coverage of MADS. However, annual operational and financial performance could impact future parking revenue coverage levels. Parking revenue bond debt service is level around $1.5 million with a final maturity in 2026.
CITY HEIGHTS:
SOUND DEBT SERVICE COVERAGE LEVELS: Annual debt service coverage for the housing set-aside TABs was over 2.0 times (x) the past three years. This includes coverage of 2.8x in fiscal 2011, notwithstanding the voluntary prepayment of $600,000 for a parity promissory note. Under various Fitch designed stress scenarios, coverage levels of housing set-aside TAB maximum annual debt service are forecasted to remain strong.
SOLID PROJECT AREA TAX BASE GROWTH: Established in 1992, the project area is large at 1,984 acres and experienced significant growth to a solid $2.1 billion AV in 2011. Recent assessed valuation (AV) declines have been moderate at 2.7% or 5.1% IV in 2011. The incremental value (IV) to base year AV ratio remains low at 1.10x. Estimated pending AV appeals are moderate and not expected to materially negatively impact AV or coverage.
DIVERSE TAXPAYERS WITH CONCENTRATED LAND USE: The project area is located two miles from San Diego's downtown and three miles from the San Diego Airport. The project area land use is concentrated with residential properties a high 80% of AV. Top ten taxpayers are diverse at a low 5.61% of AV in 2011, with the leading taxpayer under 1.00%.
HORTON PLAZA:
SOUND DEBT SERVICE COVERAGE: Annual debt service coverage for both the subordinate and housing TABs has exceeded 1.93 times (x) the past four years, including 2.03x and 1.95x respectively in fiscal 2011. Under a zero AV growth scenario, coverage of maximum annual debt service is forecasted to remain above 2.02x and 1.90x for the subordinate and housing TABs respectively and both perform well under various Fitch stress tests.
MATURE BUT CONCENTRATED PROJECT AREA: Located in the core of San Diego's downtown, the project area is small in size and highly concentrated among the top ten taxpayers at 77% of IV in 2011, with a large component consisting of a major regional shopping center. Assessed valuation (AV) has declined 7% in total over the past four years. Despite this modest decline, the fully-developed tax base is stable at $805 million with a very high incremental value (IV) to base year AV ratio in fiscal 2011 at over 45x.
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, IHS Global Insight, 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
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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
Primary Analyst
Bernhard Fischer, +1-212-908-9167
Director
Fitch
Inc., One State Street Plaza,
New York, NY 10004
or
Secondary
Analyst
Karen Ribble, +1-415-732-5611
or
Committee
Chairperson
Amy Laskey, +1-212-908-0568
Managing Director
or
Media
Relations:
Elizabeth Fogerty, +1-212-908-0526
Email: elizabeth.fogerty@fitchratings.com