TEXT-Fitch may still cut California's Chico Redevelopment Agency TABs
Oct 10 - Fitch Ratings maintains the Rating Watch Negative for the following Chico Redevelopment Agency, CA (RDA) tax allocation bonds (TABs): --$65.3 million Chico Amended and Merged Redevelopment Project TABs, series 2005, 'A+'; --$ 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 AB 1484 DISPUTE CONTINUES: The City of Chico (the city) has been recognized as the successor agency (SA) to the RDA. The bonds remain on Rating Watch Negative pending resolution of the on-going dispute between the (SA) and the state's Department of Finance (DOF) regarding the repayment by the SA of property tax distributions from December 2011 and January 2012 that the state believes should have been directed to other taxing entities. The SA disputes the amount due ($11.2 million), but did make a partial payment of $961,207 in July 2012. POTENTIAL RESOLUTION: DOF has stated that they currently do not intend to enforce non-payment penalties while the matter is in dispute. DOF further stated it is working on a process for handling the disputes on a case by case basis with more details expected to be released over the next few weeks. Fitch views this as a potentially positive development, depending on the process' details, but notes that until the dispute is resolved, risks to bondholders are elevated. OCTOBER 2012 DEBT SERVICE PAYMENT MADE: The SA made the full October 1st debt service payment from available funds. Funding for the payment was approved under the July 1, 2012 to December 31, 2012 recognized obligation payment schedules (ROPS). WHAT COULD TRIGGER A DOWNGRADE? A final resolution with DOF leaving the city without sufficient funds to continue to pay debt service could result in a downgrade, possibly to below investment grade. CREDIT SUMMARY The city is located 90 miles north of Sacramento and 174 miles northeast of San Francisco and is the major retail, recreational, educational, financial and commerce center for Butte County and the surrounding area. The project area is large and encompasses 16 square miles and about 40% of the city and portions of unincorporated Butte County. The project area's taxable value represents a good mix of residential, commercial, and industrial properties and AV growth has historically been very sound. For fiscal 2011, the project area experienced its first decline in total AV as AV dropped 3.1% compared to fiscal 2010 due to a combination of successful property appeals and Proposition 8 reductions. AV declined again in fiscal 2012, but at a lower rate (1.6%). Debt service coverage, however, remains strong with fiscal 2011 tax increment revenue coverage of maximum annual debt service at 2.42 times (x), and coverage of 2.38x reflecting a 1.6% decline. For more information on the RDA, please see Fitch's latest release dated July 20, 2012. It is available on Fitch's web site at 'www.fitchratings.com'.