OREANDA-NEWS. Fitch Ratings affirms the following Orange Redevelopment Agency, California's (the agency) tax allocation bonds (TABs) at 'A+':

--$35 million, series 2008A and 2008B.

The Rating Outlook is Stable.

SECURITY

The TABs are secured by tax increment revenues generated within the merged project area. Tax increment revenues exclude senior pass-through/tax sharing agreements and administrative fees. The TABs are additionally payable from housing increment revenue.

KEY RATING DRIVERS

STRONG DEBT SERVICE COVERAGE: Maximum annual debt service (MADS) coverage on all the bonds is strong at 4.3x. Coverage holds up sufficiently under various Fitch stress tests.

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

SOUND TAX BASE PERFORMANCE: The agency's taxable assessed value (TAV) has been stable to growing in recent years, despite moderate concentration and an above-average level of appeals. The overall composition of businesses within the project area is diverse, benefitting from its large size and location at the commercial center of the City of Orange (the city).

SATISFACTORY AB1X26 IMPLEMENTATION: The rating incorporates the expectation that the successor agency will continue its satisfactory implementation of AB1X26 (dissolution legislation) procedures.

RATING SENSITIVITIES

TAX BASE PERFORMANCE: The rating is sensitive to tax base changes outside the historical range. Tax base declines that materially decrease pledged revenues, though unlikely, could have a negative effect on the rating. However, continued tax base growth and reduced volatility may lead to positive rating action.

CREDIT PROFILE

The city, population 139,812, is located in Orange County about 32 miles southeast of Los Angeles. The city benefits from its participation in the greater Los Angeles and Orange County labor markets.

STRONG DEBT SERVICE COVERAGE

Fitch estimates that project area revenues will cover MADS by 4.3 times (x) based upon fiscal 2016 TAV. Coverage stands up well under various Fitch-designed stress scenarios, including the loss of the top 10 taxpayers, and the loss of all appeals. TAV would have to drop by more than 77% to lower MADS coverage to 1.0x. Debt service ranges from $6.5 million per year until 2024 when it declines considerably to roughly $2.4 million per year through bond maturity in 2038.

SOUND TAX BASE PERFORMANCE

TAV performance has stabilized following several years of volatility. TAV grew 6.9% in fiscal 2016 after remaining essentially flat in fiscal 2015. The TAV of pending appeals is a high $1.2 billion (23.8% of TAV). However, the average loss rate, which peaked at 26.5% in fiscal 2011, has declined, and is currently at 14.4%. This would equate to a projected TAV loss of approximately $176 million or a 3.4% decline in TAV. Management expects appeals to continue on a downward trend and projects continued TAV growth over the next three to five years based on similar growth rates across Orange and Los Angeles counties.

The project area is large in size, at 3,080 acres. It benefits by encompassing essentially all of the city's commercial and industrial area, which total about 73% of the project area's TAV. Management reports development within the project area is robust, supported by various mall upgrades, a new auto dealership, and a new apartment complex. There is increased demand for office space and the industrial vacancy rate is low at 3%. Agency officials report many big-box retail stores are looking to open a second location within the city. Taxpayer concentration is moderate, with the top 10 taxpayers comprising 21% of TAV and 31% of incremental valuation (IV). This moderate concentration is offset by the diverse overall composition of businesses in the project area, which includes auto dealerships, general retail, regional shopping malls, and manufacturers.

The local economy is fundamentally sound and benefits from its proximity to the broad and diverse labor markets of the greater Los Angeles and Orange county areas. The city of Orange is characterized by above average wealth levels, with per capita income equaling 113% and 122% of state and national averages, respectively. The city's August 2015 unemployment rate of 4.2% is well below the state and national rates of 6.1% and 5.2%, respectively.

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 lessening as management continues adherence to indenture requirements, necessary revenue tracking is in place, and timely and robust continuing disclosure reports are being provided. Since dissolution, the successor agency's procedures to manage dissolution have become well-established, lessening operational risks.