SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has affirmed the following Rocklin Unified School District (USD) Community Facilities District (CFD) No. 1, CA ratings at 'AA-':
--$5.6 million refunding special tax bonds, series, 2007;
--$18.7 million special tax bonds, series 2000, 2001, 2004, and 2007.
In addition, Fitch has affirmed the following Rocklin USD CFD No. 2, CA rating at 'AA-':
--$10.8 million special tax bonds, series, 2007.
The Rating Outlook is Stable.
SECURITY
All of the CFD special tax (Mello-Roos) bonds are secured by the combined proceeds of annual special taxes levied and collected from property within CFD Nos. 1, 2, and 3. The special tax levy is capped at currently-levied maximum rates, with annual adjustments of 2-3%, for various parcel categories.
KEY RATING DRIVERS
NARROW DEBT SERVICE COVERAGE MITIGATED: Concerns over narrow debt service coverage levels are partially offset by substantial (although not pledged) reserve levels, a very high value-to-lien ratio, a covenant to pursue accelerated foreclosure if conditions warrant, and the ability to levy backup taxes, if necessary.
STRONG ECONOMIC FUNDAMENTALS: The CFDs are component units of the Rocklin USD (GO bonds rated 'AA'/Stable by Fitch), whose residents exhibit above average wealth levels, although AV has dropped moderately over the last three years.
MANAGEABLE DEBT BURDEN: Debt levels are moderate with average amortization and are expected to remain manageable if new bonded indebtedness is incurred.
PERSISTENT RESIDENTIAL PROPERTY MARKET WEAKNESS: After a sustained period of decline, Fitch believes management's expectation of stabilization in the residential property market in fiscal 2014 is reasonable. However, any further economic dislocation could negatively impact delinquency rates and, therefore, diminish already thin debt service coverage.
RATING SENSITIVITIES
While the narrow debt service coverage limits the rating to its current level, Fitch believes that debt service coverage is somewhat protected by the lack of AV-related risk.
CREDIT PROFILE
The three CFDs are component units of the Rocklin USD which is located in the southwest portion of Placer County, 14 miles northeast of Sacramento. In combination, the three CFD areas include almost 12,000 developed parcels, 235 parcels approved for development, and almost 1,200 undeveloped acres.
NARROW DEBT SERVICE COVERAGE WITH SIGNIFICANT MITIGANTS
Primary credit support is derived from the pledge of combined annual parcel taxes on all three CFDs. The voter-approved special tax levy is designed to cover annual debt service payments and make sinking fund deposits for the accreted interest on future capital appreciation bond repayments, fund anticipated delinquencies, replenish the required bond reserves, and cover all pay-as-you-go expenses.
The special tax levy is capped at the current levels plus a 3% annual escalation for CFD Nos. 1 and 2 and 2% annual escalation for CFD No. 3. In fiscal 2012, single family house parcels paid a special tax of $789 each in CFD Nos. 1 and 2 and $730 in CFD No. 3. Multi-family housing parcels paid $395 and $365 respectively. Each developed parcel is subject to the special tax levy for 22 years in CFD No. 1, 25 years in CFD No. 2, and 30 years in CFD No. 3. If tax rates on developed parcels are projected to be insufficient, backup taxes can be imposed on undeveloped parcels, as has been done in recent years. In fiscal 2012, vacant undeveloped parcels paid the same rates as multi-family housing parcel.
In 2007, the special tax revenues were projected to hold steady at 1.15 times (x) annual debt service. However, debt service coverage has dropped to as low as 1.08x in fiscal 2012. This variability is caused primarily by uneven debt repayment amounts, as pledged revenue has grown, and is projected to continue to grow, modestly each year.
Special tax revenues are collected by the county at the same time as ad valorem property tax revenues. While the CFDs are not guaranteed 100% of their current year special tax collections because Placer County's Teeter Plan excludes special taxes and assessments, they do receive delinquent payments and related penalties.
Despite narrow coverage margins, the CFDs have accumulated substantial balances from excess special tax revenues, including $21.6 million unreserved in the Capital Projects Fund. While this amount is not pledged to bond repayment and will likely be expended in the future, it currently represents 3.32x fiscal 2013 debt service requirements. There is also a debt service reserve fund equivalent to MADS ($7.2 million).
IMPROVING ECONOMY BUT PERSISTENT TAX BASE WEAKNESS
The local economy is starting to improve. The unemployment rate dropped to 6.2% in December 2012, with both employment opportunities and the labor force beginning to grow again. Resident wealth levels are above average, with median household income at 132% of the state and 154% of the U.S.
However, tax base weakness persists. The CFDs' combined TAV declined 12.8% from the peak recorded in FY 2008. TAV is expected to stabilize in fiscal 2014, followed by slow growth thereafter. Fitch believes prospects for growth are reasonable given almost 1,200 acres of undeveloped land within the CFDs (whose future developed parcels will be subject to the special tax at the higher developed parcel rate) and signs that the regional property market is starting to improve. The special tax revenue base is diverse with 80% of special tax revenues paid by 8,287 owners of individual single family houses.
The special tax levies are not tied to parcels' TAVs and, therefore, special tax revenues are protected against declining property values. The CFDs covenant to pursue unilaterally accelerated foreclosures if delinquencies exceed 5% or if an individual delinquency exceeds $10,000.
AFFORDABLE DEBT
Direct debt levels are low at 1.9% of the CFDs' combined TAV or $1,058 per capita; overall debt levels are moderate at 3.5% of the district's total AV and $3,801 per capita. Debt amortization is below-average at 40% in 10 years based solely on repayment of principal, but rises to 59% when annual sinking fund deposits for accreted interest on capital appreciation bonds are taken into account. Additional CFD debt might be required in the medium term if the USD decides to proceed with new school construction given its ongoing student enrollment growth. While additional debt could be accommodated by the current very high value-to-lien ratio of 55:1 and voter-approved bond authorizations which have not yet been fully exhausted, the 1.15x additional bonds test limits the amount of additional debt issued.
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 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=790730
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