TEXT-Fitch keeps Santa Cruz County Redevelopment Agency TABs on watch negative

Tue Dec 18, 2012 5:46pm EST

Dec 18 - Fitch Ratings maintains the Rating Watch Negative for the following
Santa Cruz County Redevelopment Agency (RDA), CA's tax allocation bonds (TABs):

--$157.6 million TABs, series 2000, 2000A, 2003, 2005A, 2005B, 2007, and 2007A
rated 'A'.

SECURITY

The TABs are secured by a first pledge and lien on net incremental property tax
revenues generated by the sole Soquel/Live Oak project area. The revenues are
net of county administration fees, tax-sharing agreements, AB 1290 pass-through
obligations, and the statutory 20% housing set-aside, except for the portion of
the TABs that financed low and moderate income housing qualifying projects. The
debt service reserve requirement is satisfied through a combination of
cash-funded reserve and surety bonds from Ambac Assurance Corporation and
National Public Financial Guarantee Corporation.

KEY RATING DRIVERS

AB 1484 DISPUTE CONTINUES: The bonds remain on Rating Watch Negative pending
resolution of the on-going dispute between the Successor Agency (SA) for Santa
Cruz County RDA and the state's Department of Finance (DOF). The dispute is
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 ($11.6 million) and made only a
partial payment ($599,079) to retain sufficient funds for its Sept. 1, 2012 debt
service payment.

NEAR-TERM RESOLUTION EXPECTED: Management indicated that they are working with
the DOF to file a stipulated agreement that would resolve the dispute. Under the
agreement, the SA would no longer be required to make the outstanding AB 1484
payment and the DOF would issue a finding of completion. Fitch views this as a
positive development and expects to remove the Rating Watch once the agreement
is finalized, which management expects over the next couple of weeks.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported
Rating Criteria, this action was additionally informed by information from
Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index,
IHS Global Insight, and National Association of Realtors.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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