Fitch Affirms CDA of City of Coronado, CA’s TABs ‘A+’; Outlook Stable

SAN FRANCISCO–(BUSINESS WIRE)–In the course of routine surveillance, Fitch Ratings affirms the Community Development Agency of the City of Coronado, CA’s ‘A+’ rating on approximately $138 million outstanding tax allocation bonds (TABs). The Rating Outlook is Stable. The ‘A+’ rating reflects the agency’s integral role within the city of Coronado (the city), ample fund balances, solid incremental assessed value growth, and good debt service coverage. These positive factors are balanced by taxpayer concentration, the agency’s vulnerability to a sizable property tax shift for this fiscal year, and general softening in the region’s housing market and economy. To a lesser extent, above average but affordable debt levels also impact this rating. The redevelopment project area encompasses almost all of the city’s taxable property value and the agency acts as the primary capital financing arm of the city. Tax increment revenue growth has been sizable and well above projections made when the bonds were sold in 2006. Net tax increment in fiscal 2008 rose 19% to $13.8 million, almost 19% over the 2006 projection. Actual fiscal 2008, non-housing revenues cover maximum annual debt service (MADS) a good 1.54 times (x) and the housing portion covers MADS on the bonds it secures 1.68x, above the 2006 projections of 1.30x and 1.33x, respectively. Parity debt service increases slightly with MADS occurs in fiscal 2034. Fitch believes the agency’s future assumption for assessed valuation (AV) growth is reasonable given the project area’s history, but may be tampered by conditions in the surrounding area. Debt service coverage exhibits resiliency under Fitch-designed stress scenarios. Assuming no growth in AV beyond fiscal 2010, MADS coverage remains sound at 1.50x for non-housing bonds and 1.68x for housing bonds. An extreme scenario envisions a 25% decline in AV, reducing MADS coverage to 1.06x and 1.12x, respectively. Also, the agency’s debt is protected by adequate legals, primarily a 1.2x additional bonds test. The agency maintains good reserve levels with total fund balance $39.9 million as of June 30, 2008. California’s recently enacted state budget requires a sizable property tax revenue shift from redevelopment agencies statewide to school districts. The agency expects their share of the fiscal 2010 $1.7 billion shift to be $5.1 million, with this payment subordinate to debt service. Another $1 million is scheduled to be diverted in fiscal 2011. Based on preliminary incremental value for this year, the payment will utilize nearly all of the tax increment revenue available for redevelopment programs. The agency currently is evaluating how to fund the payment, with options including use of reserves and borrowing from funds restricted in use for low and moderate income housing as allowed by the state enabling legislation. Fitch believes the subordinate nature of the tax shift sufficiently protects bondholders. Tax base growth has been strong, attributable to residential housing turnover although prices have declined sharply. While AV growth averaged a strong 8.5% annually since 1999, slower growth is evident. Nonetheless, preliminary agency 2010 AV shows a 6.3% rise, far better than San Diego County overall where a 2.3% decline is expected. Incremental assessed value growth has also been solid, rising 67% over the last five years for an annual average increase of 10.1%. The city is a wealthy residential and recreational community with a large hotel resort complex located across the San Diego Bay from downtown San Diego. Almost all of the city’s taxable assessed value is within the project area’s boundaries, demonstrating the project area’s major role in the local economy. The city is essentially built-out and residential property makes up 85% of AV. The largest taxpayer (Hotel Del Coronado) accounts for 7.3% of the total incremental value down from 12.1% in 2003 as property in the complex has been sold to other owners. Income levels are well above state and national averages and unemployment in the MSA is rising but remains below the state rate. Fitch’s rating definitions and the terms of use of such ratings are available on the agency’s public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch’s code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the ‘Code of Conduct’ section of this site.