Nov 15 - Fitch rates the following series of Contra Costa Transportation Authority (CCTA or
the authority), CA's sales tax revenue bonds 'AA+':
--$201.4 million variable rate sales tax refunding bonds, series 2012A;
--$169 million sales tax bonds, series 2012B.
Proceeds from the series 2012A bonds will refund the outstanding sales tax
revenue bonds, series 2010. Proceeds from the series 2012B bonds will finance a
portion of the costs associated with certain projects authorized by the agency's
expenditure plan and pay the costs of issuance for both bond series.
The bonds will be sold via negotiation sale during the week of Dec. 3rd. The
series 2012A bonds will be issued as variable rate bonds in the SIFMA or Index
Mode with a mandatory tender date of March 1, 2015. The series 2012B bonds reach
final maturity on March 1, 2025.
The Rating Outlook is Stable.
The sales tax revenue bonds are secured by revenue from the 1/2 cent retail
transactions and use tax (sales tax) authorized by Measure J and levied
throughout Contra Costa County (the county), net of the Board of Equalization
KEY RATING DRIVERS
STRONG DEBT SERVICE COVERAGE: Coverage is a strong 2.5 times (x) maximum annual
debt service (MADS) and is projected to remain ample based on sales tax
revenue's past performance, the economic outlook for Contra Costa County, and
satisfactory restrictions on additional leveraging.
HEALTHY SALES TAX BASE: Pledged revenue is a broad-based, voter-approved sales
tax supported by the county's rebounding economy and solid economic
fundamentals. The economically sensitive revenue source recently returned to
growth after declining significantly during the recession. The tax expires after
the bonds' final maturity.
RECOVERYING ECONOMY; SOLID FUNDAMENTALS: The county's economy is diverse and
well-integrated with the dynamic regional economy of the greater San Francisco
Bay Area. The county's economic characteristics are solid with above average
wealth levels, a sizeable and growing population, and solid employment growth
despite a still elevated unemployment rate.
SATISFACTORY LEGAL PROVISIONS: Legal protections are solid with a 1.75x
additional bonds test (ABT) and additional restrictions limiting the use of
sales tax revenues for capital projects.
LIMITED OPERATING RISK: CCTA benefits from its limited exposure to operational
risks, the essential nature of Measure J's approved capital projects, and
transportation programs, and strong voter support.
STRONG DEBT SERVICE COVERAGE
Debt service coverage is projected to remain ample. Maximum annual debt service
(MADS), calculated using the swap payment amount as a proxy for the variable
rate debt service, occurs in fiscal 2017 at approximately $27.5 million, is
covered at 2.5x based on fiscal 2012 sales tax revenue (unaudited). MADS
coverage is still solid at 2.24x based on fiscal 2010 revenues of $61.5 million,
the lowest revenue year since fiscal 2000. Coverage levels are resilient under
various Fitch conducted stress tests, including greater and more persistent
revenue declines than recoded historically and 2012A debt service based on the
A preliminary estimate of additional debt equals approximately $61 million in
fiscal 2014. Debt service coverage is expected to remain satisfactory following
the additional issuance.
SATISFACTORY LEGAL PROTECTIONS
Fitch views bondholders' legal protections as satisfactory. Sales tax revenues
are distributed directly from the Board of Equalization, the state's collection
agency, to the trustee. The additional bonds test (ABT) is solid at 1.75x MADS
(including outstanding and proposed bonds), based on revenues collected in any
12 consecutive months within the 18 months prior to issuance. The bonds are
issued without a debt service reserve fund, although rating concerns are
mitigated by the strong coverage levels.
CCTA is restricted by ordinance to allocating no more than 42.5% of annual sales
tax revenues to capital projects with the remaining revenues allocated to
various transportation programs operated by third parties. Fitch views this
additional restriction on the leveraging of sales tax revenue as a credit
DIVERSE TAX BASE; VOLATILE REVENUES
Sales tax revenues demonstrated their sensitivity to economic conditions with a
cumulative 18.8% decline from fiscal 2007-2010. However, as sales activity in
various sectors improved including auto, retail, and construction, total
receipts returned to growth with a cumulative revenue increase of 11.7% over
fiscal years 2011-2012. Despite the recent improvements, fiscal 2012 revenues
remain 9.3% below the peak year in fiscal 2007. Fitch expects future revenue to
continue to be volatile but not severely so given the tax base's economic
strength and the diversity of revenue generating transactions.
RECOVERING ECONOMY WITH SOLID FUNDAMENTALS
The county was significantly impacted by the recession with significant declines
in property values and high unemployment, but recent economic indicators point
to an on-going recovery. The county's unemployment rate fell 1.7% over the past
year to 8.4% (September 2012) due to 3% employment growth that exceeded state
(1.5%) and national (2%) levels. Local employers are diverse with top employers
in industrial, healthcare, biotechnology, and other sectors. In addition, the
county benefits from its relatively affordable housing and access to the large
labor market in the broad and diverse San Francisco Bay Area economy.
Contra Costa County is the third most populated of the nine San Francisco Bay
Area counties with a growing population of 1.1 million. Wealth levels in the
county are a credit positive with the per capita and median household income
levels at 31% and 51%, respectively, above the national average. The county
covers approximately 802 square miles and includes 19 incorporated cities,
including Richmond, Concord, Walnut Creek, and Martinez, which serves as the
VARIABLE RATE EXPOSURE
The series 2012A bonds are variable rate obligations that will be issued in
either SIFMA or Index Mode with a mandatory tender on March 1, 2015. The bonds
are not subject to acceleration nor are they covered by a liquidity facility. In
the event of a failed remarketing, the bonds will carry a penalty interest rate
of 8%-12%. CCTA has synthetically fixed the interest rate through a swap
agreement with Bank of America (LIBOR based) that had a negative mark-to-market
value of $56.6 million on Oct. 29, 2012.
LIMITED OPERATIONAL RISK; ESSENTIAL PROJECTS
CCTA was formed as the implementation agency in 1988 for Measure J's
predecessor, Measure C, and provides funding for public transportation programs
within the county and oversees the planning and construction of specified
capital projects. Measure J extends the sales tax for 25 years with an
expiration date of March 31, 2034. Measure J received strong support with
approval by 71% of voters.
Fitch views the wide range of capital projects and transportation programs
funded by the Measure J as essential. These projects include the fourth bore of
the Caldecott Tunnel, the eBART extension, highway improvements, and the funding
of local transit systems. CCTA does not retain ownership of completed projects
or operate transportation programs. Fitch views CCTA's operational risk as low
given its relatively narrow role as a planning, coordinating, overseeing, and