Fitch Ratings has removed from Rating Watch Negative the following tax allocation bonds (TABs) for the Santa Monica Redevelopment Agency, CA (the RDA):
--$11.3 million (Ocean Park Redevelopment Projects) TABs, series 2002, 'A';
--$95 million (Earthquake Recovery Redevelopment Project Area) TABs, series 2006A, 2006B, and 2011, 'AA-'.
The Rating Outlook is Stable.
SECURITY
Ocean Park TABs: The bonds are limited obligations of the RDA secured by a pledge of tax increment revenue generated from sub-area 1a equal to 91% of 135% of maximum annual debt service (MADS) on the series 2002 bonds, and tax increment revenue generated from sub-area 1b equal to 9% of 135% of MADS. Pledged tax increment revenues are net of the county administrative fee. The RDA's 20% low and moderate income housing obligation is net of a debt service credit approximating the proportion of bond proceeds used to fund low and moderate income housing.
Earthquake Recovery TABs: The bonds are secured by tax increment revenues generated within the Earthquake Recovery Project Area net of the 20% housing set-aside and subordinate to certain statutory pass-through payments to overlapping entities. Additional security provisions include a parity debt service reserve fund.
KEY RATING DRIVERS
PROGRESS ON AB 1X26 IMPLEMENTATION: The City of Santa Monica (the city) has been recognized as the successor agency (SA) to the RDA. The recognized obligation payment schedules (ROPS), which include calendar 2012 debt service, have been approved by the oversight board and state. The SA has received sufficient payments, along with available cash reserves, 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.
ADEQUATE REVENUE TRACKING: The SA is tracking revenues on a project area-specific basis and has indicated its intent to allocate any potential future revenue shortfall to the appropriate TAB in conformance with security requirements under bond indentures.
HOUSING REVENUE AVAILABILITY: The lack of distinction between former housing set-aside revenue and total tax increment under AB 1X26 did not affect Fitch's assessment of credit quality. The aggregation of tax increment results in higher calculated debt service coverage levels for Fitch-rated bonds. However, this is inconsistent with the bond indenture, which specifies that only non-housing increment is pledged. Fitch believes further clarification as to the availability of revenue not pledged under the indenture is needed before factoring this increased coverage into the rating.
Additional information on the RDA is available in Fitch's June 14, 2011 release, available at 'www.fitchratings.com'.
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).
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
Scott Monroe, +1-415-732-5618
Director
Fitch,
Inc., 650 California St, San Francisco, CA 94133
or
Secondary
Analyst
Karen Ribble, +1-415-732-5611
Senior Director
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