OREANDA-NEWS. Fitch Ratings has affirmed the following Oakley Redevelopment Agency, California's tax allocation bonds (TABs):

--\$24.8 million subordinate TABs series 2008 at 'BB+'.

In addition, Fitch affirms the 'A' rating on the following senior TABs of the RDA:

--\$6.4 million TABs, series 2003.

The Rating Outlook on both series of bonds is Stable.

SECURITY

Per the indenture, the senior TABs are secured by tax increment revenues generated within the project area, net of administration fees, pass-through amounts and housing set-aside. Part of the senior TABs was used for low/moderate income housing purposes and can be repaid from the housing set-aside revenues.

The subordinate bonds are secured by net tax increment after debt service payments on the agency's senior 2003 TABs.

Each series of TABs has its own cash funded debt service reserve fund, with the standard three-pronged requirements.

KEY RATING DRIVERS

RECENT TAX BASE GROWTH: The project area's assessed value (AV) recorded solid gains over the past two years with a cumulative increase of 19.2%. Despite the recent positive performance, fiscal 2015 AV remains 15.2% below fiscal 2009 levels, demonstrating its volatility. The tax base is moderately concentrated in the top 10 taxpayers.

IMPROVED SUB COVERAGE: Debt service coverage on the subordinate series 2008 bonds remains thin but showed material improvement following the AV increase in fiscal 2015. Fitch calculated maximum annual debt service coverage (MADS) rose to 1.13 times (x) compared to just 1.01x in fiscal 2014. Coverage levels remain vulnerable to tax base losses with just a 9% AV decline required to drop MADS coverage below 1.0x.

SOLID SENIOR LIEN COVERAGE: The 'A' rating on the senior lien TABs reflects solid maximum annual debt service (MADS) coverage and significant resilience to potential AV declines.

SOUND ECONOMIC PROFILE: The project area benefits from the city's underlying economy that features above average employment growth, favorable unemployment rates, below average poverty levels, and good access to regional labor markets.

SURPLUS HOUSING REVENUES: Fitch's analysis includes non-pledged surplus housing revenues as available to pay non-housing TAB debt service based on the Department of Finance's (DOF) explicit consent as part of the payment process. The surplus housing revenues provide material benefit to the subordinate bonds' debt service coverage. Fitch also considers the TAB liens to be closed.

SATISFACTORY AB1X26 IMPLEMENTATION: The rating incorporates the expectation that the agency will continue its satisfactory implementation of AB1x26 (dissolution legislation) procedures and prioritize the rated debt service payments.

RATING SENSITIVITIES

IMPROVED COVERAGE LEVELS: Positive rating action on the subordinate series 2008 bonds would likely occur if coverage levels are meaningfully increased due to additional tax base growth.

CREDIT PROFILE

The city of Oakley (the city) is about 50 miles northeast of San Francisco, and 58 miles southwest of Sacramento. The Oakley Redevelopment Project Area (the project area) is 1,537 acres, or about 15% of the city. It is 62% residential and 18% commercial. Following the dissolution of the former Oakley Redevelopment Agency, the city has taken over as the successor agency (SA) to wind down operations and facilitate debt payments.

SOLID AV GROWTH, MODERATE CONCENTRATION

The project area recorded solid AV gains in fiscals 2014 and 2015 after experiencing a cumulative 29% drop from fiscals 2009 through 2013. The recent growth, which has been driven by a recovering real estate market, raised project area AV by 15% and 3.6% in fiscals 2015 and 2014, respectively. Fitch expects AV levels to continue to increase over the near term based on positive changes in the real estate market, although future gains are likely to be at a slower pace than realized in fiscal 2015.

The tax base is moderately concentrated with its top 10 taxpayers accounting 16.6% of AV and 21.9% of incremental value (IV). Concerns regarding concentration are more acute given the low coverage levels on the subordinate bonds, which heighten the vulnerability of the tax base and bondholder repayment to the loss of several of the larger taxpayers.

VULNERABLE BUT IMPROVED SUB COVERAGE

Debt service coverage on the subordinate series 2008 bonds improved notably with the increased AV in fiscal 2015. MADS coverage rose to 1.13x compared to 1.01x in fiscal 2014. Fitch calculated annual debt service for fiscal 2015 is 1.35x.

Coverage levels remain vulnerable to tax base losses with just a 9% AV decline required to drop MADS coverage below 1.0x. However, Fitch expects coverage levels to improve somewhat over the near term due to positive changes in the local housing market that are likely to bolster project area AV. In addition, management's plan to refund the outstanding series 2003 bonds for near term savings could provide some relief to support modestly improved coverage levels. The refunding, which would only proceed if favorable market conditions are present, is scheduled for May 2015 and expected to be on par with the outstanding subordinate bonds with no extension of final maturity.

SOLID SENIOR COVERAGE

Series 2003 senior TABs benefit from strong coverage. Fitch estimated MADS coverage is 5.10x. Coverage levels are resilient under various AV stresses, and remain at 1.0x with an AV decline of 56%.

BEDROOM COMMUNITY WITH SOUND ECONOMIC CHARACTERISTICS

The city, in north-eastern Contra Costa County, is a bedroom community to the San Francisco and Sacramento employment centers and is home to approximately 38,000 residents. The city experienced strong population growth in the early- and mid-2000s with a corresponding housing boom, which left the city exposed to significant loses during the housing-led recession.

Economic indicators for the city are sound with above average employment growth, average per capita income levels, and a low poverty rate. The city's unemployment rate of 4.4% (December 2014) compares favorably to that of the state (6.7%) and nation (5.4%).