TEXT-Fitch keeps Chico Redevelopment Agency, Calif. TABs on watch negative
Feb 26 - 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 bonds remain on Rating Watch Negative pending resolution of the on-going dispute between the City of Chico (the city) as the successor agency (SA) to the RDA and the state's Department of Finance (DOF). The dispute relates to the repayment by the SA of $11.2 million in prior property tax distributions that the state believes should have been directed to other taxing entities. NEAR-TERM RESOLUTION EXPECTED: DOF has stated that they currently do not intend to enforce non-payment penalties while the matter is in dispute. The SA has indicated that they intend to work with the DOF over the next couple of weeks to enter into a stipulated judgement that would resolve the dispute. Fitch views this as a positive development and expects to resolve the Rating Watch once the judgement is finalized. 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 Dec. 31, 2012 recognized obligation payment schedules (ROPS). Funding for the next debt service payment, due April 1, 2013, was approved under the Jan. 1, 2013 to June 30, 2013 ROPS. RATING SENSITIVITIES INSUFFICIENT FUNDS FOR DEBT SERVICE: A final resolution with DOF leaving the SA 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 (less pass throughs) coverage of maximum annual debt service at about 2.5x, and coverage of 2.45x reflecting the impact of the 1.6% decline. 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, 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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