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

--\$75.8 million (Arlington, Magnolia Center, Hunter Park/Northside, University Corridor/Sycamore Canyon Merged, & La Sierra/Arlanza Redevelopment Projects) TABs, series 2007C, at 'BBB+';
--\$33.2 million (Arlington, Magnolia Center, Hunter Park/Northside, University Corridor/Sycamore Canyon Merged, & La Sierra/Arlanza Redevelopment Projects taxable TABs, series 2007D, at 'BBB+'.

The Rating Outlook is Stable.

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 all project areas, none is responsible for the shortfall in another's payments as per the TAB indenture.

KEY RATING DRIVERS

WEAKEST LINK ANALYSIS: The obligation is several but not joint, so the rating is based on Fitch's assessment of the weakest of the five project areas: the Magnolia and Arlington project areas.

MAGNOLIA PROJECT AREA: The project area is characterized by its small size, extremely high concentration in top taxpayers, and a low incremental value (IV) to base year value reflective of its lack of maturity, despite recent assessed valuation (AV) gains. The AV cushion (the amount of AV decline that can be absorbed before coverage becomes sum sufficient) is adequate.

ARLINGTON PROJECT AREA: The project area benefits from adequate AV cushion due to recent AV recovery, but also lacks maturity (low IV to base year value), exhibits high historical AV volatility and has high taxpayer concentration.

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 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 both the Arlington and Magnolia project areas' assessed valuations.

CREDIT PROFILE

The city of Riverside (the city) is located in western Riverside County in California's Inland Empire. The five project areas together comprise 13,155 acres and 46% 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 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 level 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 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.

ARLINGTON PROJECT AREA - ADEQUATE AV CUSHION, CONCENTRATED

The medium-sized Arlington project area is highly concentrated and lacking in maturity, but has an adequate AV cushion. Established in 1978, the project area's IV to base year ratio is low at just 121%, resulting in a high degree of revenue volatility when AV declines. The project area's top 10 taxpayers make up 26% of AV and a high 50% of IV.

The project area's total recessionary peak-to-trough AV decline was a significant 11.3%. Recovery began in fiscal 2014 with a 3.1% AV gain followed by a further 6.7% in fiscal 2015. The fiscal consultant projects pending appeals will result in a small \$12.8 million AV loss (1.6% of AV), a modest improvement from the year prior.

Fitch estimates the project area's fiscal 2015 net revenues at \$4.1 million, covering parity debt service of \$1.7 million by 2.39x. Fitch estimates the project area's AV cushion at an adequate 28% if appeals are applied at levels the fiscal consultant is currently projecting.

MAGNOLIA PROJECT AREA - ADEQUATE AV CUSHION, HIGHLY CONCENTRATED

The Magnolia project area is a very small (475 acres), highly concentrated project area that benefits from a currently adequate AV cushion. The project area was established in 1998, but lacks maturity with a low IV to base year value of just 110% leaving revenues vulnerable to a high degree of volatility during times of AV decline. The project area's top 10 property taxpayers make up 34% of AV and an extremely high 70% of IV. The fiscal consultant is projecting that pending appeals will result in a \$5.8 million AV loss, or a small 0.9% of AV. The project area's AV grew by 2.5% and 5% respectively in fiscal 2014 and 2015. Total recessionary losses were a modest 2.6% from peak to trough.

Fitch estimates Magnolia's fiscal 2015 net revenues of \$3.2 million would cover parity debt service of \$1.2 million by 2.68x. Fitch estimates the project area's AV cushion at an adequate 30.5% if appeals are applied at levels the fiscal consultant is currently projecting.

LA SIERRA/ARLANZA PROJECT AREA - SOUND AV CUSHION, LACKS MATURITY, VOLATILE AV

The La Sierra/Arlanza project area is a very large 6,424 acres with a sound AV cushion. However, these strengths are partially offset by the project area's very low degree of tax base maturity and high taxpayer concentration levels. Formed in 2005, the project area's IV to base year value is extremely low at just 77%, resulting in a very high degree of revenue volatility when AV declines. The project area's top 10 taxpayers make up 17% of AV and a very high 45% of IV. The project area's AV has experienced substantial volatility, exhibiting extremely high growth prior to the recession with steep decline (14% peak to trough) during the recession. AV gained 3.4% and 9.2% in fiscal 2014 and 2015 respectively. The agency's consultant-estimated pending appeal losses equal a manageable \$53 million (1.3% AV).

Fitch estimates La Sierra/Arlanza's fiscal 2015 net revenues of \$17 million would cover senior parity debt service of \$3 million by 5.62x. Fitch estimates the project area's AV cushion at a sound 34.3% if appeals are applied at levels the fiscal consultant is currently projecting.

HUNTER PARK/NORTHSIDE PROJECT AREA - SOUND AV CUSHION, LACKS MATURITY, VOLATILE AV

The Hunter Park/Northside project area is large at 2,636 acres but is highly concentrated and lacks tax base maturity. However, the project area's AV cushion is sound. Established in 2003, this project area has a low IV to base year value of 105%, resulting in a very high degree of revenue volatility when AV declines. The project area's top 10 taxpayers make up 22% of AV and a high 46% of IV.

Consultant-estimated appeals increased slightly in fiscal 2015 at 2.9% of AV (\$44.6 million) versus 2.1% the year prior. The project area has enjoyed solid gains since the housing-led recession, posting a cumulative 13% AV gain from fiscal 2012 to 2015.

Fitch estimates Hunter Park/Northside's fiscal 2015 net revenues of \$7.8 million would cover parity debt service of \$1.5 million by 5.02x. If appeals are applied at levels the fiscal consultant currently is projecting, Fitch estimates the project area's AV cushion at a sound 38.1%.

UNIVERSITY/SYCAMORE PROJECT AREA- HIGH AV CUSHION, INCREASED APPEALS

The University/Sycamore merged project area is a large 2,346 acres and benefits from a high AV cushion and mature tax base. The University and Sycamore sub-areas were formed in 1977 and 1983, respectively. Due to their age and maturity, the IV to base year value is a high 1134%, resulting in a low degree of revenue sensitivity to AV volatility. The top 10 taxpayers make up 39% of AV and a high 42% of IV. The project area's AV grew or remained flat through most of the recession, but has fallen from fiscal 2011 to 2014 while other project areas generally have been experiencing improvements. Fiscal 2015 was the first year of AV recovery with a 2.1% increase. However, the agency's consultant-estimated appeals losses have also been increasing, to a significant 7.3% of AV (\$97 million) compared to 3.3% the year prior.

Fitch estimates University/Sycamore's fiscal 2015 net revenues of \$7.4 million would cover parity debt service of \$2.7 million by 2.74x. If appeals are applied at levels the fiscal consultant currently is projecting, Fitch estimates the project area's AV cushion at a high 41%.

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.