(Continued from this City of Redding press release…)
SAN FRANCISCO — As part of its continuous surveillance effort, Fitch Ratings has affirmed the rating on Redding Redevelopment Agency, CA’s bonds:
–$27.5 million outstanding Canby-Hilltop-Cypress (CHC) Redevelopment Project tax allocation bonds (TABs) series 2003A at ‘A’. The Rating Outlook is Stable.
KEY RATING DRIVERS
Sizable Project Area Tax Base: Despite recent modest assessed valuation (AV) declines in fiscal 2010 and 2011, the tax base remains a sizable $1.1 billion with a high 514% incremental value (IV) to base year AV ratio.
Low Concentration: Given the maturity, the project area is a diverse mix of commercial and retail properties with no significant individual taxpayer concentration.
Sound Debt Service Coverage: Annual senior bond debt service coverage has exceeded 1.64 times (x) the past three years, including an estimated 2.22x in fiscal 2011, and performs well under various Fitch stress tests.
Good Annual Tax Increment Collections: Tax increment collections remain strong despite some weakening over the past four years due in part to recent commercial vacancies. Since the agency does not participate in the Shasta County Teeter Plan, the CHC project area receives all penalty payments on delinquent tax increment collections.
Adequate Legal Provisions: Additional parity debt issuances are required to meet a 1.25x maximum annual debt service (MADS) test from senior revenues.
Limited Additional Debt Issuance Expected: The agency has contracted with the city to fund capital projects from surplus revenue and, as a result, the agency does not anticipate issuing additional parity debt.
Legislative Changes: The state recently approved legislation that requires agencies to make significant ongoing payments or cease operations. The matter is being litigated and a ruling is expected from the California Supreme Court in January 2012. Fitch does not view the legislation as a material credit weakness for this rating as it provides for continued debt service repayment from net incremental revenues.
The bonds are secured by a senior lien on all tax increment revenues of the CHC redevelopment project area net of any required set-aside and pass-through payments.
Project Area: The CHC project area, formed in 1981 and expanded in 1990, encompasses 2,050 acres or approximately 5% of the city of Redding’s geographic area. The project area is largely built out and has become the city’s prime commercial area with a diversified retail and commercial tax base. New development includes re-occupancy of some vacant commercial/retail spaces and a new car dealership. Steady annual double-digit tax base growth over the past decade slowed in the past two years to declines of 1% in 2010 and 9.2% in 2011 but the tax base remains a sizable $1.1 billion, compared to a base year value of $179.5 million. The top 10 taxpayers comprise a low 14% of the project area’s total AV in 2011 led by Mt. Shasta mall at 3% with anchor tenants Macy’s, JC Penny and Sears. Pending valuation appeals are minimal following county-wide proposition 8 adjustments over the past two years.
Coverage Ratios: Following steady increases between fiscal years 2006 and 2010, annual pledged revenues (after set-asides and pass-throughs) have stabilized around $5 million in fiscal 2011 and continue to provide good coverage of senior MADS at over 2.0x and over 1.8x for total debt service, which includes a subordinate loan from the city. Fitch stress tests indicate MADS coverage in fiscal 2012 of 1.7x based on a 4% AV decline plus the loss of the top 10 taxpayers. An immediate AV decline of 45.5% would be required for senior MADS coverage to fall to 1.0x. Debt service coverage levels are expected to remain sound given the low likelihood of additional debt issuance. Senior debt service is level around $2.2 million through final maturity in 2024. The CHC capital project unreserved fund balance was marginal at $4.6 million estimated at fiscal year end 2011 following payments to fund state required educational revenue augmentation fund payments of over $3.7 million for fiscal years 2010 and 2011 combined. Those payments were subordinate to senior debt service.
Economy: The City of Redding (population 91,561 in 2010) is located 160 miles north of Sacramento in Shasta County and serves as a regional commercial, retail and medical hub for the northern California counties of Shasta, Tehama and Trinity. Leading local employers include the city and county governments and several medical facilities. Significant tax base growth over the past decade slowed over the past three years and is expected to remain stable given the city’s full slate of services. City financial performance remains sound despite slowed revenues including property and sales taxes with an unreserved general fund balance of $4.5 million or 7% of expenditures for fiscal year 2011. The local rate of unemployment remains above state and national levels and most recently was 15% in June 2011. While the local cost of living is low, median household income indicators remain 17% and 37% below national and state levels.
-from press release
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