TEXT-Fitch may still cut Chico Redevelopment Agency, Calif. TABs

July 20 - Fitch Ratings has maintained the Rating Watch Negative for the following tax allocation bonds (TABs) for the Chico Redevelopment Agency, CA (the RDA): --$65.3 million Chico Amended and Merged Redevelopment Project TABs, series 2005, 'A+'; --$ 19.2 million Chico Amended and Merged Redevelopment Project refunding TABs, series 2007, 'A+'. SECURITY The bonds are secured by tax increment revenues generated within the sole project area, Chico Amended and Merged Redevelopment Project Area, net of the 20% housing set-aside and senior statutory pass-throughs. KEY RATING DRIVERS IMPLICATIONS OF AB 1484: The governor signed this trailer bill 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 should have been directed to other taxing entities. The SA is disputing the amount of the required repayment. The bonds remain on Rating Watch Negative pending a resolution of this dispute. Fitch is concerned that the repayment amount may leave the SA insufficient funds to make its upcoming debt service payment. PROGRESS ON AB 1X26 IMPLEMENTATION: The City of Chico (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. 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 May 17, 2011 release, available at 'www.fitchratings.com'.