OREANDA-NEWS. September 21, 2015. Fitch Ratings has upgraded the following San Fernando Redevelopment Agency (the RDA or the agency), California tax allocation bonds (TABs) to 'A-' from 'BBB+':

--\\$7.2 million RDA civic center redevelopment project (project area 3) TABs series 2006.

The Rating Outlook is Stable.

SECURITY

The bonds are backed by a pledge of tax increment revenues generated in project area 3 net of certain pass-through payments and administrative fees. The bonds are additionally payable from housing increment revenues.

KEY RATING DRIVERS

SOLID DEBT SERVICE COVERAGE: The upgrade reflects solid maximum annual debt service (MADS) coverage, supported by a recent settlement related to tax override revenues available to the project area. Coverage holds up well under various Fitch stress tests and includes housing revenues, which Fitch considers to be available to pay non-housing TAB debt service.

TAX OVERRIDE SETTLEMENT: Debt service coverage calculations reflect a total property tax rate of 1.25%, which includes a 0.25% 1946 pension tax override. Prior to the April 2015 settlement, the successor agency (SA) had contended that tax override revenues for all project areas should not be included in SA's revenue base. The settlement with the state department of finance and the Los Angeles County auditor-controller identified only project area 4 override revenues as excludable from the SA's revenue base.

CLOSED LIEN AFTER DISSOLUTION: Fitch considers all TAB liens to be closed, as SAs are not permitted to issue new money TABs.

STABLE BUT CONCENTRATED TAX BASE: Assessed values (AV) for the project area have generally seen annual growth in recent years following a moderate decline and flat performance in fiscal years 2011 and 2012. A moderate fiscal 2016 AV decline reflected a tax exemption granted to an affordable housing development. The project area is heavily concentrated in its top taxpayers.

BELOW-AVERAGE ECONOMIC INDICATORS: City personal income per capita is low compared to state and national averages and the city's poverty rate is above average. Area unemployment exceeds state and national levels.

RATING SENSITIVITIES

SHIFTS IN REVENUE AVAILABLE FOR DEBT SERVICE: The rating is sensitive to shifts in pledged revenue due to tax-base changes outside the historical range. Tax-base declines that materially decrease pledged revenues could have a negative effect on the rating. Given AV stability and growth trends, Fitch believes such shifts are not likely in the near term.

CREDIT PROFILE

The city of San Fernando (population 24,220 in 2013) is located in Southern California in Los Angeles County and is completely surrounded by the city of Los Angeles. San Fernando serves as a bedroom community to the wider Los Angeles County and is also home to a variety of industrial and commercial companies. City population has held steady over the last decade, with growth during that period lower than state and national rates.

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.

STABLE PROJECT AREA; TAX BASE HEAVILY CONCENTRATED

The city of San Fernando, as SA, manages four project areas, with debt service on the rated bonds payable from incremental property taxes generated in one of the project areas, project area 3. Project area 3 consists of original and annexed areas, which together represent almost one-quarter of the city's acreage and include the city's civic center complex, the San Fernando business hub, as well as a 19-acre regional shopping area. Following an AV decline of 1.1% in fiscal 2011, project area AV saw annual growth through fiscal 2015. AV grew by 1.1% in fiscal 2014, with 1.8% growth for fiscal 2015. A fiscal 2016 AV decline (1.2%) reflected a tax exemption granted to an affordable housing development. No additional exemptions on existing properties are expected for the project area, and near-term modest AV growth is projected.

On a combined basis, the project area's tax base is approximately 50% industrial, 20% unsecured, 14% commercial and 12% residential. The tax base is heavily concentrated; top 10 taxpayers make up about 57% of incremental value (IV), with the two largest taxpayers, real estate and pharmaceutical firms, at 18% and 12% of IV, respectively.

BELOW-AVERAGE ECONOMIC INDICATORS

The city's largest employer is the local school district, with other top employers consisting of the county court, soft drink bottling companies, retail establishments and some manufacturers. Unemployment data for the city is unavailable. However, the Los Angeles county unemployment rate was above average at 7.4% in June 2015, as compared to 6.2% for California and 5.5% nationwide.

City per capita income is relatively low, at about 60% of the state and 63% of the national average. The city's poverty rate is above state and national levels. Median household income is closer to the state average, at about 90%, and exceeds the national average (104%).

SOUND DEBT SERVICE COVERAGE

Coverage of MADS based on fiscal 2016 revenues (net of senior pass-throughs but including the former housing set-aside revenues) is about 2.5x. This reflects a total property tax rate of 1.25%, which includes a tax override rate of 0.25%. The override rate was authorized by voters in 1946 to fund the city's payments to the California Public Employees' Retirement System. While the SA had contended that tax override revenues were transferable to the city and should not be included in SA's revenue base as TIF revenues flowing into the Redevelopment Property Tax Trust Fund (RPTTF), a city settlement with the state department of finance and the Los Angeles County auditor-controller identified only project area 4 override revenues as excludable form the RPTTF.

Project area IV to-base year value is high at 922%, resulting in a low degree of revenue sensitivity to AV volatility. Coverage stands up well to various Fitch-designed stress scenarios, including the loss of the top five taxpayers and AV declines related to historical appeals granted. An AV decline of about 54% would be required to reduce debt service coverage to 1x MADS. The RDA does not have any housing TABs.

COMPLIANCE WITH DISSOLUTION PROCEDURES

The city of San Fernando has been recognized as the SA to the RDA. Recognized obligation payment schedules (ROPS) that include 2015 debt service have been approved by the oversight board and state. The SA has received approval for sufficient funds to cover 2015 debt service payments.

Dissolution-related (AB 1X 26) risks are lessening as management is continuing to adhere to indenture requirements, and necessary revenue tracking is in place. Since dissolution, the successor agency's procedures to manage dissolution have become well-established, lessening operational risks.