NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the following Arcadia Redevelopment Agency (Central Redevelopment Project), California's (the agency) tax allocation bonds (TABs) at 'A+':
--$6.2 million series 2001A (senior lien).
The Rating Outlook is Stable.
SECURITY
The senior lien bonds are secured by a pledge of the agency's tax increment revenue collected within the sole project area. This is net of the county administrative fee, tax sharing payments to overlapping taxing entities, and the standard 20% set-aside for low and moderate income housing.
KEY RATING DRIVERS
STRONG DEBT SERVICE COVERAGE: Maximum annual debt service (MADS) coverage on the agency's outstanding senior bonds is very high at 3.8 times (x). Coverage holds up well under various Fitch stress tests.
SOLID PROJECT AREA, LOCAL ECONOMY: The project area benefits from its location and function as the commercial and retail core of the city of Arcadia. The local economy benefits from its participation in the greater Los Angeles labor markets and features above-average wealth levels and a below-average unemployment rate.
CONCENTRATED, STABLE TAX BASE: High concentration exists within the project area, with the top 10 taxpayers representing 40% of incremental value (IV). Project area assessed value (AV) continued its moderate growth following one flat year in fiscal 2012.
SATISFACTORY AB1X26 IMPLEMENTATION: The rating incorporates the expectation that the agency will continue its satisfactory implementation of AB1X26 (dissolution legislation) procedures.
HOUSING REVENUE AVAILABILITY: The agency retains access to housing set-aside revenue no longer restricted for this purpose following dissolution. Fitch's methodology conservatively excludes such revenues from debt service coverage calculations as they are not pledged to debt service on non-housing TABs.
RATING SENSITIVITIES
The rating is unlikely to move higher due to the project area's small size and its highly concentrated tax base.
CREDIT PROFILE
The city of Arcadia (the city), population 57,497, is an affluent suburban community located in Los Angeles County about 20 miles northeast of downtown Los Angeles. The presence of a large regional mall supports the city's extensive retail sector. In addition, the Santa Anita racetrack, adjacent to the project area, is a well-known horseracing venue which periodically attracts large numbers of visitors.
RESILIENT AV GROWTH; VERY STRONG COVERAGE
Project area AV only experienced a 0.2% decline in fiscal 2012, followed by another two years of steady growth. The AV growth rate averaged 3.5% per year over the last six years, providing a backdrop for stable coverage numbers.
Fitch estimates that project area revenues will cover MADS on the senior lien bonds by 3.8x based on fiscal 2014 AV. Coverage stands up well under various Fitch-designed stress scenarios, including the loss of the top 10 taxpayers, additional years of moderate AV declines, and additional appeals. AV would have to drop by more than 71% to lower MADS to 1.0x. Current coverage of combined senior and subordinate (not rated by Fitch) MADS is approximately 1.3x based on fiscal 2014 AV.
Assessment appeal activity is moderate and is not expected to have a sizeable impact upon the tax base.
SOLID PROJECT AREA
The project area encompasses 252 acres, which although small in size, includes much of the city's downtown and central business districts.
Management reports the pipeline for development within the project area is strong. The agency is in the process of selling various properties to the Rusnak Mercedes Benz dealership. Construction to expand the current dealership is slated to begin in early 2014, with an estimated construction value of at least $10 million. The Metro Gold Line Authority purchased property for a train depot and parking structure as part of the Gold Line transit line expanding from Pasadena to Azusa. These developments are expected to positively impact AV growth over the next several years.
HIGH TAX BASE CONCENTRATION
Taxpayer concentration is high, with the top 10 taxpayers comprising 37% of AV and 40% of IV. Five of the top 10 taxpayers are hotels, which account for 23% of tax increment revenues.
STRONG SOCIOECONOMIC PROFILE
The local economy benefits from its proximity to the broad and diverse labor markets of the greater Los Angeles County area. The city of Arcadia is characterized by above-average wealth levels, with per capita money income 130% and 138% of state and national averages, respectively. The city's unemployment rate remains well below state and national averages.
AB1X26 IMPLEMENTATION
Management has submitted recognized obligation payment schedules (ROPS) in a timely fashion, which have been approved by the state department of finance (DOF). Payments have been sufficient and timely to cover debt service in 2012 and 2013. The agency has received the DOF Finding of Completion letter, acknowledging the successful completion of several due diligence reviews. In addition, the agency submitted and had approved its long-range property management plan that addresses the disposition and use of agency owned properties.
Additional information is available at 'www.fitchratings.com'.
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 the 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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=810793
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