Fitch Affirms San Bernardino County Transp Auth, CA's Sales Tax Revs at 'AA+'; Outlook Stable
Fitch Ratings affirms the following ratings for San Bernardino County Transportation Authority, California's sales tax revenue bonds at 'AA+':
--$88 million series 2012A;
--$110 million series 2014A.
The Rating Outlook is Stable.
SECURITY
The bonds are payable from a first lien pledge of the authority's sales tax revenues, net of collection charges. The sales tax revenues derive solely from the voter-approved one-half-cent Measure I sales tax to be collected through 2040.
KEY RATING DRIVERS
The 'AA+' sales tax revenue bond rating reflects the fundamentally strong local economy, solid growth prospects, satisfactory limitations on additional leverage, and limited plans for new issuance.
Solid Growth Prospects: Fitch views growth prospects for pledged revenues as solid due to consistent population and employment growth in San Bernardino County, mixed income ratios and improving unemployment rates. The regional economy's growth is driven by the relatively lower cost of living relative to coastal areas and abundant developable land.
Resilient Revenue Stream: Pledged sales tax revenues are resilient to both cyclical declines. Fiscal 2015 revenues cover maximum annual debt service (MADS) for existing debt by 9.4x.
Limited Leverage Plans: The authority funds the bulk of its projects from ongoing revenues. The authority is currently formulating its long range plan and expects to issue a final series of new money sales tax revenue bonds in fiscal 2018. While it is too early to have estimates on the size, the authority believes MADS coverage would not drop below 3.0x, well above the sound additional bonds test (ABT) of 2.0x MADS.
No IDR: The authority does not have material operations. Therefore, Fitch does not believe the assignment of an IDR is relevant to its analysis.
RATING SENSITIVITIES
UNEXPECTED LEVERAGE: The current rating assumes the authority's debt plans remain relatively limited and MADS coverage remains in excess of 3.0x. Leveraging of pledged revenues beyond these expectations could lead to a negative rating action.
CREDIT PROFILE
The authority provides funding for public transit systems, and oversees the construction, maintenance, improvement and operation of roads and highways. The authority does not own or maintain facilities.
SALES TAX REVENUE GROWTH PROSPECTS
The sales tax revenue bonds are payable from the half-cent retail transactions and use tax (sales tax) authorized by the voter-approved Measure I ordinance and levied throughout San Bernardino County, net of the state's Board of Equalization (BOE) administrative fee. The tax expires in 2040. The tax base is broad and diverse and Fitch views growth prospects for San Bernardino County as solid due to consistent population and employment growth.
The BOE distributes the sales tax revenues on a monthly basis according to a predetermined formula with quarterly true-ups. Residual sales tax revenues following debt service payments are released to the authority for other purposes, including distributions to local jurisdictions, investments in capital projects, and administrative costs.
SECURITY STRUCTURE RESILIENT THROUGH DOWNTURNS
Legal provisions providing protections for bondholders include an additional bonds test (ABT) of 2.0x MADS for bonds outstanding plus bonds to be issued. The authority expects to issue its final new money issuance under Measure I in fiscal 2018; however, estimates for par are unavailable until the long range master plan is completed. Nonetheless, the authority believes and Fitch assumes that MADS debt service coverage will remain in excess of 3.0x.
Fitch evaluates the revenue stream's sensitivity to economic downturns by considering both the estimated reduction in sales tax revenues under a 1% contraction in national GDP and the largest consecutive decline in actual sales tax revenues over the past 15 years. Debt service coverage based on fiscal 2015 revenues is quite resilient, with an estimated cushion of 13x the Fitch-estimated 7% revenue loss in a moderate economic contraction scenario, and 3x the greatest consecutive historical decline, which amounted to approximately 28% from 2007-2010.
Fitch focused its analysis on debt service coverage and resilience assuming the authority maintains at least 3.0x MADS coverage based on the issuer's expectations for leverage, which are consistent with its history of relatively low leverage of its sales tax revenues. Pledged revenue's resilience from 3.0x DSC is strong with the ability to withstand a 67% revenue decline, equal to 9.7x the estimated negative 1% GDP decline scenario of 7% and 2.35x the greatest historical decline in revenues. Although the coverage of the largest historical decline is low for the rating category, Fitch notes that fiscal 2016 revenues are expected to realize year-over-year growth and continued growth prospects are solid. In addition, the rating incorporates the outsized impact of the housing market collapse on the San Bernardino County and Fitch's expectation that such a drastic decline in pledged revenues would not recur in future economic downturns. All debt is fixed rate.
The authority does not have material operations. Therefore, Fitch does not believe the assignment of an IDR is relevant to its analysis.
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