OREANDA-NEWS. Fitch Ratings has assigned an 'AA' rating to the following California Statewide Community Development Authority (CSCDA) bonds:

--Approximately $40 million revenue bonds, series 2016 (Monterey County GO SAVERs bond program).

The bonds are expected to price via negotiation in mid-October. Proceeds will be used to purchase five series of general obligation (GO) refunding bonds issued by: Alisal Union School District (Alisal), Chualar Union Elementary School District (Chualar), Mission Union Elementary School District (Mission), Salinas Union High School District (Salinas) and Santa Rita Union School District (Santa Rita, and collectively the local districts). The local districts' GO bonds are all refunding bonds being issued to refund outstanding GO bonds on a current basis for debt service savings.

The Rating Outlook is Stable.

SECURITY

The 2016 GO revenue bonds are payable from debt service payments made by the local districts on the purchased local district refunding GO bonds on a several, but not joint basis.

The local districts' unlimited tax GO (ULTGO) bonds are secured by unlimited ad valorem taxes levied in each district.

KEY RATING DRIVERS

WEAKEST LINK ANALYSIS: Payment of debt service on the GO revenue bonds is a several but not joint obligation of the local districts. As a result, the rating is based on Fitch's assessment of the weakest of the five school districts' ULTGO bond credits: Chualar and Mission.

SPECIAL REVENUE ANALYSIS: The 'AA' rating on the revenue bonds is based on Fitch's assessment of the weakest of the local districts' ULTGO pledges (Chualar and Mission) which in turn is based on a dedicated tax analysis without regard to the local districts' financial operations. Fitch has been provided with legal opinions for each district that provide a reasonable basis for concluding that the tax revenues levied to repay the bonds would be considered 'pledged special revenues' in the event of a district bankruptcy.

CONCENTRATED, STABLE AGRICULTURAL TAX BASE; LOW DEBT, TAX RATE: The economic resource bases supporting both Chualar and Mission's GOs are highly concentrated in their top 10 taxpayers at 33% and 55%, respectively. All top taxpayers for both are agricultural enterprises. Factors offsetting concentration risk include the high value and diversity of the agriculture, the relatively low tax rates and debt levels, and the positive tax base performance throughout the great recession. The Chualar and Mission assessed valuations (AV) increased each year between fiscal 2007-2017 for a compounded average annual growth rate of 5.2% and 6.1%, respectively.

RATING SENSITIVITIES

MATERIAL CHANGES TO TAX BASE: Economic deterioration resulting in a change in expectations for tax base and economic performance, could negatively affect the rating.

CREDIT PROFILE

Each of the local districts participating in the current transaction is located in the Salinas Valley in northeastern Monterey County. Monterey County's economy continues to show steady gains with a growing housing market and sustained employment growth.

A healthy agricultural industry dominates the county's economy, particularly in the Salinas Valley where the local districts are located. The Salinas Valley is one of the most productive agricultural regions in the world and accounts for most of Monterey County's 2014 gross production value of $4.5 billion. Economic stability is supported by the variety of crops produced as well as the diversity of trade partners. Top crops include leaf lettuce, strawberries, head lettuce, broccoli, nursery, cauliflower, celery, wine grapes, and spinach. Top export trade partners include Canada, Taiwan, Mexico, Japan, Hong Kong and Singapore. Agricultural properties within the local districts share first rights to the Salinas water table, thereby avoiding the water issues that impact other parts of Monterey County.

DEBT SERVICE LEVY VIEWED AS 'SPECIAL REVENUE'

Fitch believes that taxes levied for bond repayment would be considered pledged special revenues under the U. S. bankruptcy code and therefore the lien on pledged revenues would survive and would not be subject to the automatic stay (i. e., payment interruption) in the event any of the local districts were to file for bankruptcy.

Fitch has reviewed and analyzed the legal opinions provided by the districts' counsel and believes they provide a reasonable basis to conclude that these revenues would be treated as pledged special revenues due to certain provisions of the state constitution (primarily proposition 13), which limit and direct the use of pledged property tax revenues for bond repayment.

As a result, Fitch analyzes the local districts' bonds as dedicated tax bonds. This analysis focuses on the districts' economy, tax base and debt burden without regard to financial operations because Fitch believes that bondholders are insulated from any operating risk of the district. Fitch typically calculates the ratio of pledged revenues in the most recently completed year to maximum annual debt service for dedicated tax bonds, but this calculation is not meaningful in this case given the unlimited nature of the tax rate pledge on the district's bonds.

WEAKEST LINK ANALYSIS FOCUSES ON CHUALAR AND MISSION

CHUALAR UNION ELEMENTARY SCHOOL DISTRICT - GROWING BUT CONCENTRATED TAX BASE

The majority of the district's 66 square miles consists of agricultural properties which account for 72% of the district's AV. The top 10 taxpayers are all agricultural concerns and represent a concentrated 33% of the district's tax base. While the focus on agriculture results in below-average wealth levels for local workers and their households, it did ensure relative AV stability during the recession. The district's tax base grew every year for an aggregate 66% between fiscal years 2007-2017 to almost $487 million. This was primarily due to the rising value of agricultural land. A number of the largest ranches in the district are under multigenerational family ownership.

District tax rates are low and unlikely to rise to a level that would pressure the rating even under relatively severe stress scenarios. Under California's constitution (as established by proposition 13), the general tax rate for all overlapping governmental entities is limited to 1% of AV. The debt service tax rate (which varies automatically with debt service and AV changes) was low in fiscal 2016 at just 0.06% of AV for all taxing jurisdictions, of which 0.04% was for the district's debt. Fitch considers it very unlikely that the tax base would suffer losses of a magnitude to meaningfully erode repayment capacity.

MISSION UNION ELEMENTARY SCHOOL DISTRICT - GROWING BUT HIGHLY CONCENTRATED TAX BASE

The vast majority of Mission's 36 square miles is agricultural properties which account for 88% of district AV. The top 10 taxpayers are all agricultural concerns and represent a highly concentrated 55% of the district's tax base. The district's tax base was resilient through the great recession, increasing each year for an aggregate increase of 81% between fiscal 2007-2017 to $158 million.

Tax rates are very low and unlikely to rise to a level that would pressure the rating even under relatively severe stress scenarios. Under California's constitution (as established by proposition 13), the general tax rate for all overlapping governmental entities is limited to 1% of AV. The debt service tax rate (which varies automatically with debt service and AV changes) was low in fiscal 2016 at just 0.05% of AV for all taxing jurisdictions, of which 0.02% was for the district's debt. Fitch considers it very unlikely that the tax base would suffer losses of a magnitude to meaningfully erode repayment capacity

ALISAL UNION SCHOOL DISTRICT - DIVERSE TAX BASE; LOW DEBT

The majority of the AV in the district's 65 square miles is composed of single family residential properties with multifamily, commercial and agricultural properties represented in the diverse top 10 taxpayers which make up 5.4% of the total tax base. The regional focus on agriculture results in below-average wealth levels for local workers and their households and the AV experienced moderate declines during the recession due to the large number of single family residential properties in the district. Following declines in fiscal 2009-2012, the district's tax base resumed growing by a solid 26% through fiscal 2016 though it remains below the fiscal 2008 peak. This volatility was primarily due to the housing market correction in Salinas.

SALINAS HIGH SCHOOL DISTRICT - DIVERSE TAX BASE; LOW DEBT

The majority of the AV in the district's 259 square miles is comprised of single family residential properties with food processing, commercial and warehousing businesses represented in the diverse top 10 taxpayers (5.2% of the total tax base). The regional focus on agriculture results in below-average wealth levels for local workers and their households and the AV experienced moderate declines during the recession due to the large number of single family residential properties in the district. Following declines in fiscal 2009-2011, the district's tax base resumed growing by a solid 18% through fiscal 2016 and has returned to its previous fiscal 2008 peak. This volatility was primarily due to the housing market correction in Salinas.

SANTA RITA SCHOOL DISTRICT - DIVERSE TAX BASE; LOW DEBT

The majority of the AV in the district's 38 square miles is composed of single family residential properties with multifamily, retail, and a mining company represented in the moderately concentrated top 10 taxpayers (16.5% of total tax base). The regional focus on agriculture results in below-average wealth levels for local workers and their households and the AV experienced moderate declines during the recession due to the large number of single family residential properties in the district. Following declines in fiscal 2009-2012, the district's tax base resumed growing by a solid 19% through fiscal 2016. This volatility was primarily due to the housing market correction in Salinas.