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
--$19.2 million Chico Amended and Merged Redevelopment Project refunding TABs,
series 2007, 'A+'.
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.
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.
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