OREANDA-NEWS. Fitch Ratings has affirmed its 'A' rating on the following Santa Cruz County Redevelopment Agency (RDA), CA's tax allocation bonds (TABs).

--\$101.8 million TABs, series 2000A, 2005A, 2005B, 2007, and 2007A.

The Rating Outlook is Stable.

SECURITY
The TABs are payable from a first pledge and lien on net incremental property tax revenues generated by the Soquel/Live Oak project area. The revenues are net of county administration fees, tax-sharing agreements, and AB 1290 pass-through obligations.

The debt service reserve requirement is satisfied through a combination of cash-funded reserves and surety bonds.

KEY RATING DRIVERS

MODERATE BUT STABLE COVERAGE: Debt service coverage is estimated at 1.30x maximum annual debt service (MADS). The relatively thin coverage levels are mitigated to some extent by the tax base's stability.

NO IMPACT FROM ANALYTICAL REFINEMENT: Fitch recently refined its analysis of California TABs and is now considering their liens to be effectively closed and surplus housing revenues to be available to pay non-housing debt service. This action did not result in a material improvement of the TABs' credit risk profile.

STABLE PROJECT AREA: The project area is relatively large at 3,760 acres and almost fully developed. The tax base is diverse and remained fairly stable during the last recession, with strong growth in fiscal 2014 and 2015.

SOUND LOCAL ECONOMY: The local economy is somewhat exposed to the tourism and high technology sectors but remains fundamentally sound with above-average wealth levels.

RATING SENSITIVITIES:

TAX BASE CONTRACTION: An unexpected contraction in the tax base that reduces coverage levels below historical norms would likely lead to a downgrade.

CREDIT PROFILE

MODERATE BUT STABLE COVERAGE
Fitch calculated debt service coverage is moderate at 1.30x MADS based on estimated annual assessed value (AV) growth of 2% through maturity, or 1.27x MADS with no further growth. Fitch's calculations also consider a proposed refunding of outstanding debt for interest savings anticipated in 2015. Coverage is resistant to stress scenarios that include the loss of the top 10 taxpayers and a 15% decline in AV. A 17% decline in AV would be required to reach coverage of 1.0x MADS.

ANALYTICAL REFINEMENT CONSIDERS POSITIVE EFFECTS OF DISSOLUTION
On May 1, 2014 Fitch refined its California RDA analysis pertaining to the beneficial impact of dissolution legislation (AB 1X 26). Fitch now considers TAB liens to be closed and surplus housing revenues to be available for non-housing TAB debt service.

Fitch formerly excluded positive dissolution factors from consideration, reflecting a conservative approach to a dissolution environment marked by legislative, administrative, and judicial uncertainty. Although uncertainties remain, Fitch views the continued presence of closed TAB liens and surplus housing revenue availability as more likely than not to remain a feature of California TABs.

Fitch views these factors as positive credit characteristics, but they were not sufficiently material to result in a positive rating action since the agency's housing set-aside revenues had been fully leveraged in borrowings prior to dissolution.

STABLE, DEVELOPED TAX BASE
Pledged revenues benefit from a diverse and stable tax base that withstood the last recession with relatively minor losses. AV declined 3% between 2009 and 2013 but grew by 13.3% over the subsequent two years.

The Soquel/Live Oak project area consists of 3,760 acres in unincorporated Santa Cruz County located between the cities of Santa Cruz and Capitola. The incremental value of the project area is approximately 4.1x its base value. In fiscal 2014, the top 10 taxpayers comprised only 3.2% of total project area AV, or 4% of incremental value. The low concentration is likely due to the residential nature of the project area. The project area is largely developed and mature with limited area remaining for new development.

SOUND ECONOMY
Agriculture, tourism, education, technology and the service sector continue to play important economic roles in the area. Large employers include the University of California Santa Cruz, Pajaro Valley Unified School District, Dominican Hospital, Cabrillo College, the Santa Cruz Boardwalk and Seagate Technology.

The Santa Cruz-Watsonville MSA unemployment rate of 7.6% in November 2014 was higher than the corresponding state average of 7.1%. Wealth levels in the MSA are above average with median household income at 109% and 125% of state and national averages, respectively.