SAN FRANCISCO - (Business Wire) Fitch Ratings assigns a 'BBB' rating to $10 million Community Redevelopment Agency of the City of Los Angeles (California) Adelante Eastside Redevelopment Project 2009 tax allocation bonds (TABs), series D. Fitch also affirms the $16.7 million in outstanding parity TABs at 'BBB'. The Rating Outlook is Stable. The bonds are expected to sell via negotiation on Nov. 19, 2009. The bonds are secured by incremental property tax revenue generated in the Adelante Eastside Project Area.
The 'BBB' rating reflects the project area's continuing incremental valuation growth, solid debt service coverage levels, and strong additional bonds test. The rating also factors in the area's concentrated tax base, although that continues to decline and the majority of the top taxpayers have a stable history in the area. Despite the project area's relatively new establishment, incremental valuation is growing as a percentage of total assessed valuation (AV) which reduces the area's vulnerability to tax base appeals.
Established in 1999, the project area encompasses over 2,100 acres in eastern Los Angeles, and is largely commercial and industrial in nature. However, there are also an estimated 15,575 residents. Large economic drivers include two major hospitals. Incremental taxable value has experienced robust gains, increasing 29% on average since fiscal 2005. Consequently, incremental valuation has grown to 42% of total AV, up from 34% in fiscal 2007. While the project area's tax base is concentrated, with the largest taxpayers making up 73% of incremental value, this concentration has progressively declined from 133% in fiscal 2005 and 92% in fiscal 2007.
The agency has commenced merging the project area with Los Angeles County's Whiteside Redevelopment Project to facilitate investment in the area's biomedical technology sector. This merger is expected to become effective on Dec. 1, 2009. While future decisions will need to be made about the merged project area's taxing and bonding capacity, the revenue pledge for the Adelante Eastside Redevelopment Project's parity debt would be senior to the pledge of any incremental tax revenues to merged project area obligations.
Debt service coverage levels and security provisions are favorable. Pledged tax increment revenue includes the amount set aside for low and moderate income housing, 25% for this project area, since at least this amount of bond proceeds will go toward this purpose. Tax increment revenue for fiscal 2009, net of pass-through payments to other taxing entities, is estimated at $6.4 million, which covers parity maximum annual debt service (MADS) by 2.5 times (x). However, property tax collection rates by Los Angeles County are below average and there are sizable property valuation appeals outstanding, both of which could impact project area tax base revenues. Under Fitch stress tests which factor in such issues, coverage levels largely remain well above 1x coverage. Coverage would be most pressured if the project area lost its top three taxpayers. No adverse impact on debt service payments is expected from Educational Revenue Augmentation Fund (ERAF) contributions to the state in fiscal years 2010 and 2011.
Bondholder security is strengthened by an additional bonds test that ties parity bond issuance to development. Additional bond issuance requires coverage of MADS, including the new issue, by 2x until incremental value reaches 50% of the base year value, so long as top ten taxpayer concentration does not exceed 25%. The coverage threshold falls to 1.5x at that point, and again is lowered to 1.25x when incremental value equals the base year value. There is a common debt service reserve for all the parity bonds, to be funded by cash, a surety, or combination thereof.
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Fitch Ratings, San Francisco
Alan Gibson, 415-732-7577
Amy Doppelt, 415-732-5612
or
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