SAN FRANCISCO - (Business Wire) Fitch assigns an 'A+' rating to $10 million West Sacramento Area Flood Control Agency (Yolo County, California) assessment revenue bonds, series 2008. The Rating Outlook is Stable.
The bonds are expected to sell via negotiation during the week of Aug. 11, 2008. The bonds are secured by a city-wide assessment on property parcels.
The 'A+' rating reflects the essential nature of the capital improvement program for flood control. This capital improvement program is being partially funded by the dedicated city-wide assessment which was strongly supported by property owners. The projected revenues from the dedicated property assessment will provide debt service coverage levels which are solid and well in excess of the minimal 1.10 times (x) annual debt service coverage requirement. The West Sacramento Area Flood Control Agency (the agency) has sized its assessment revenues solely on privately-owned parcels, thereby ensuring a coverage cushion is provided from the assessment revenues from publicly-owned parcels. With an open lien, minimal 1.10x debt service coverage requirement, and slow amortization, assessment revenues have the potential to be leveraged very highly. Fitch notes that actual federal and state funding for the capital improvement program could affect the ultimate leverage beyond current expectations.
The agency was created in 1994 as a joint powers authority comprising the City of West Sacramento and two reclamation districts responsible for maintaining the city's levees. The entire city occupies a flood plain and is surrounded by water on three sides. The series 2008 bonds will finance the costs of constructing levee improvements to provide 200 year flood protection; planning, environmental, and design studies; and refinancing obligations related to the city's main drain pump station improvement project. These initiatives are all part of the city's overall $400 million flood protection improvement program. The agency projects that the dedicated assessment revenues will fund $42 million (10.5%) of the total cost and that in-lieu developer fees will fund another $42 million (10.5%), so that federal and state funds will have a total local match of $84 million (21%). The West Sacramento city council set the in lieu developer fees which are payable when developers choose to build new structures without 200-year flood protection measures.
The voter-approved assessment on each parcel is calculated based on a formula which assesses the total relative flood damage reduction benefit each parcel receives from levee improvements. The assessment rate can be increased by up to 2% per year if justified by capital improvement program cost increases. Any change to the assessment formula or rate structure would require a vote of property owners in accordance with California's Proposition 218. Assessment revenues are collected by Yolo County on the regular property tax bills. Non-payment is subject to the same remedies allowed to be taken by the county for non-payment of ad valorem property taxes and could result in proceedings to foreclose title to delinquent properties.
Annual debt service coverage is set at a minimum of 1.10 times (x). While the assessments on both privately-owned and publicly-owned parcels are pledged to bond repayment, the 1.10x minimum bond debt service coverage requirement is structured on the basis of the approximately 15,000 privately-owned parcels only. This ensures that a coverage cushion is provided from the assessment revenues from the approximately 600 publicly-owned parcels. The non-inclusion of publicly-owned parcels in the debt service coverage calculations recognizes that publicly-owned parcels are not subject to enforcement of a lien for payment of an assessed amount.
The series 2008 bonds have an open lien because the city intends to issue further assessment revenue bonds, starting in the next 2-3 years. While the additional bonds test requires only a low 1.10x coverage ratio, this is based solely on private parcel assessment revenues. The bond reserve fund requirement is based on the standard three-prong test and the bond reserve fund balance would have to be increased commensurate with any future bond issuances.
The agency's direct debt is a low $233 per capita, or 0.2% of total assessed valuation. Overall net debt is much higher at $7,234 per capita or 5.6% of total assessed valuation. This is partially offset by the high total assessed valuation per capita of $128,323. The series 2008 bonds amortize very slowly at 10.7% in five years and 21.8% in 10 years.
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Fitch Ratings, San Francisco
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Karen Ribble, 415-732-5611
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