OREANDA-NEWS. December 16, 2015. Fitch Ratings has affirmed the 'AA+' rating on the following outstanding Orange County Local Transportation Authority (OCTA or the authority), CA's sales tax revenue bonds:

--\\$293.5 million sales tax revenue bonds series 2010A; and
--\\$39.2 million sales tax revenue bonds series 2010B.

The Rating Outlook is Stable.

SECURITY
Bonds are payable from a first lien on a countywide 1/2 cent sales tax, net of certain administrative and audit expenses and a fixed percent allocation to local transit agencies.

KEY RATING DRIVERS

BROAD REVENUE PLEDGE: Pledged revenue is derived from a broad-based, voter-approved sales and use tax applicable to all taxable sales within Orange County (the county).

WEALTHY, DIVERSE ECONOMY: Orange County benefits from a fundamentally strong economy characterized by diverse employment sectors, above-average wealth levels, an educated workforce, and an unemployment rate below state and national averages.

STRONG DEBT SERVICE COVERAGE: Debt service coverage is currently strong and projected to remain at sound levels, even under various stress scenarios, including management's plans for additional debt issuance. This largely offsets the permissive additional bonds test (ABT) of 1.3x maximum annual debt service.

LIMITED OPERATING RISK: OCLTA benefits from its limited exposure to operational risks, primarily serving as a funding conduit for highway-related capital projects whose scope can be adjusted for varying economic and financial conditions.

RATING SENSITIVITIES

SALES TAX REVENUE LEVERAGE: Leveraging of sales tax revenue significantly beyond current projections would result in a re-evaluation of the 'AA+' rating.

CREDIT PROFILE

The authority, as part of Orange County Transportation Authority (OCTA), is responsible for implementing the county's traffic improvement and growth management plan. This responsibility includes allocating Measure M2 sales tax (as successor to Measure M1) and development and implementation of voter-approved freeway, street and road, and transit projects.

OCTA was created in 1990 to consolidate the county's transportation agencies, including the authority, and has the same board of directors as the authority: five county supervisors, 10 city council representatives, two public members and a non-voting ex-officio member appointed by the governor. The authority has limited exposure to operational risks, serving primarily in a capital funding capacity.

HIGH RATING REFLECTS BROAD CREDIT STRENGTHS

The rating reflects high projected debt service coverage levels, the strength of the local economy, and the solid community support for and essentiality of services provided by OCLTA. While the ABT is weak, management's debt issuance plans maintain sound coverage levels based on fiscal 2013 sales tax revenue. Fitch believes these plans are credible given that coverage of prior bonds from a now-expired 20-year sales tax remained at solid levels throughout their life. In addition Fitch believes the tax's sunset results in decreased incentive towards the latter years of the tax's collection.

Debt service coverage levels were high at 7.7x in fiscal 2015 and projected to remain sound through the expiration of the M2 sales tax in fiscal 2041. Management's plans for additional debt issuance include a significant amount of debt for the authority's major project (expansion of Interstate 405). Total issuance under Measure M2 is currently projected at \\$1.4 billion. Issuance was previously planned for fiscals 2017, 2019, and 2021; however, current sales tax revenues and federal funding are now expected to delay issuance until fiscal 2019. Coverage levels are projected to remain sound and well in excess of the authority's 1.3x ABT under various Fitch-produced stress tests that include the additional debt issuances and flat to declining revenues.

SALES TAX REVENUE GROWTH

The authority began collecting a 1/2 cent sales tax under the voter-approved Measure M2 in April 2011, which is a 30-year extension of Measure M1 that began in 1991 and expired at the end of March 2011. Program revenues declined from fiscal 2008 through fiscal 2010 with net pledged revenues declining nearly 20%. However, sales tax revenues have demonstrated solid growth recently, averaging about 6% growth rate from fiscal 2011 (including M1 and M2 revenues) through fiscal 2015. In fiscal 2016, the authority projects sales tax receipts to increase by 5.7% based on a composite of three regional university-based economic growth forecasts.

DIVERSE, WEALTHY ECONOMY SUPPORT DEBT REPAYMENT

The county's taxable sales base is broad and diverse, including transactions that serve the county's three million residents, destination retail and entertainment, and tourism activity centered on Disneyland and coastal draws.

The county's strong economic profile is supported by above-average wealth levels, an educated workforce, and a large and diverse economy. The local economy was negatively affected by the housing-led recession with significant job losses, particularly in finance and construction. However, job growth in the county has picked up recently and the unemployment rate declined to 4.3% in October 2015, which compares favorably to both the state (5.7%) and nation (4.8%).

Wealth levels in the county are above state and national averages with median household and per capita income 26% above the state average.