OREANDA-NEWS. Fitch Ratings has upgraded the following tax allocation bonds (TABs) for Riverside Public Financing Authority, CA (the PFA):

--\$8.2 million (Casa Blanca & Downtown/Airport Redevelopment Projects) TABs, series 2007A, to 'BBB+' from 'BBB';
--\$12.1 million (Casa Blanca & Downtown/Airport Redevelopment Projects) taxable TABs, series 2007B, to 'BBB+' from 'BBB'.

The Rating Outlook is revised to Stable from Positive.

SECURITY
The bonds are secured by loan repayments to the PFA from non-housing tax increment revenue net of applicable pass through payments and county administrative expenses, and are additionally payable from housing increment on a subordinate basis to housing TABs, in each of the project areas. While revenue pledged to debt service combines repayments from both project areas, neither project areas is responsible for the shortfall in another's payments as per the TAB indenture.

KEY RATING DRIVERS

IMPROVED AV CUSHION: The upgrade reflects continued improvement of the Casa Blanca project area's assessed valuation (AV) cushion (the amount of AV decline that can be absorbed before coverage becomes sum sufficient) consistent with the 'BBB+' rating level.

WEAKEST LINK ANALYSIS: The obligation is several but not joint, so the rating is based on Fitch's assessment of the weaker of the two project areas, which in Fitch's view is the Casa Blanca project area.

CASA BLANCA PROJECT AREA: The project area is characterized by its small size, high taxpayer concentration and historically volatile AV. These are partially mitigated by recent AV gains and a high incremental value (IV) to base year value reflecting the maturity of the project area.

ECONOMIC RECOVERY: City-wide employment levels, construction activities and home prices continue to improve after a severe housing-led downturn; however, recent home price growth has slowed.

COMPLIANCE WITH DISSOLUTION PROCEDURES: Dissolution related (AB 1X 26) risks are being mitigated. Management is adhering to indenture requirements, tracking revenues by project areas as necessary, providing timely and robust continuing disclosure reports and using debt service reserves to mitigate dissolution-related cash flow issues.

RATING SENSITIVITIES
TAX BASE PERFORMANCE: The rating is sensitive to changes in the Casa Blanca project area assessed valuation.

CREDIT PROFILE

The city of Riverside (the city) is located in western Riverside County in California's Inland Empire. The two project areas together comprise 3,140 acres and 10% of the city's fiscal 2014 AV.

IMPROVING ECONOMIC CONDITIONS

The city posted employment gains at an annual average rate of 2% for the past five years, resulting in a 2014 employment level slightly above the pre-recession peak. The city's unemployment rate at 6.3% in March 2015 (seasonally unadjusted) is a significant improvement from a high 14.3% in 2009, and in line with the state-wide unemployment rate of 6.1%. Other socio-economic indicators are somewhat below average, with median household income at 91% of the state level, poverty at 19% (compared with 16% state wide), and below-average educational attainment levels.

The city's housing market has realized substantial gains over the past several years. Zillow's home price index for the city grew by 52% from the lowest point in November 2011 to April 2015. However, it is still 28% below the pre-recession peak and growth has slowed. April 2015 year-over-year growth was 5%, much lower than the 20% average annual growth seen in the two prior years. Growth in assessed value (AV) may not follow similar patterns due to the effects of Proposition 13 and Proposition 8, as well as the significant presence of non-residential properties in the project areas.

CASA BLANCA PROJECT AREA - ADEQUATE AV CUSHION, CONTINUED AV GROWTH

Casa Blanca project area AV recovery has been steady and is in its third year. After a cumulative 12% decline in 2010-2012, AV is now up by 9% as of fiscal 2015. The fiscal consultant is projecting that pending appeals will result in an \$8.8 million AV loss, or a manageable 2.5% of AV.

The Casa Blanca project area is highly concentrated (top 10 taxpayers comprising 35% of incremental value (IV)) and small at 725 acres, but is centrally located and mature. Established in 1977, the project area benefits from a high IV/base year ratio of 1681%. This suggests a low degree of additional revenue volatility for a moderate reduction of AV.

Fitch estimates the project area's fiscal 2015 net revenues at \$2.6 million, covering parity debt service of \$1.8 million by 1.58x. Fitch estimates the project area's AV cushion at an adequate 27% if appeals are applied at levels the fiscal consultant is currently projecting.

DOWNTOWN/AIRPORT PROJECT AREA - SOUND AV CUSHION, RESOLVED APPEALS

The Downtown/Airport project area had a large and growing backlog of pending AV appeals with an estimated AV loss of \$118 million (8.8% of AV) in fiscal 2014. Some of these appeals were resolved in fiscal 2015, resulting in a net 1.7% decline in AV offsetting underlying AV gains, and a reduced backlog of pending AV appeals (\$53 million, or 4.6% of AV).

The Downtown/Airport merged project area is highly concentrated (top 10 taxpayers comprise 39% of IV), but mature and quite large at 2,415 acres. The project area's sub-areas were established in 1971 and 1976, with a correspondingly high IV/base year ratio of 716%. The project area experienced a fairly modest 4.2% AV decline from its fiscal 2010 peak to fiscal 2012. Some recovery followed, but has largely been offset by granted appeals.

Fitch estimates the project area's fiscal 2015 net revenues at \$6.6 million (including surplus housing revenue), covering parity debt service of \$3.2 million at 2.05x. Fitch estimates the project area's AV cushion at a sound 32.1% if appeals are applied at levels the fiscal consultant is currently projecting.

REDEVELOPMENT DISSOLUTION - NEUTRAL TO POSITIVE IMPACT

In May 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. 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.

COMPLIANCE WITH DISSOLUTION PROCEDURES

Dissolution related (AB 1X 26) risks are being mitigated as management is continuing to adhere to indenture requirements, necessary revenue tracking is in place, timely and robust continuing disclosure reports are being provided, and debt service reserves are being used to mitigate dissolution related cash flow issues. The agency has received its finding of completion, and is in the process of disposing of assets owned by the former agency, as directed by the state's department of finance.