OREANDA-NEWS. Fitch Ratings has upgraded the following Oakley Redevelopment Agency, California's tax allocation bonds (TABs):

--$23.6 million subordinate TABs series 2008A to 'BBB-' from 'BB+'.

The Rating Outlook is Stable.

SECURITY

The TABs are payable from tax increment revenues generated within the project area, net of administration fees and pass-through amounts, after debt service payments on the agency's senior 2003 TABs. The TABs are additionally payable from housing set-aside increment revenues.

The agency refunded the senior 2003 TABs and the senior lien is now closed.

The TABs has a cash-funded debt service reserve fund equal to $2 million, satisfying the standard three-pronged funding requirement.

KEY RATING DRIVERS

GROWING ASSESSED VALUE: The upgrade is driven by continued tax base growth resulting in improved maximum annual debt service (MADS) coverage and assessed value (AV) cushion (defined as the degree of AV loss required to cause debt service coverage to fall to a sum sufficient amount).

IMPROVED BUT STILL VUNERABLE TAX BASE: The rating level reflects a historically volatile tax base and a moderately low ratio of incremental to base year value, which magnifies the impact of AV declines on pledged revenue.

SOUND ECONOMIC PROFILE: The project area benefits from the city's underlying economy that features above average income levels, below average poverty levels, and good access to regional labor markets.

CLOSED LIEN AFTER DISSOLUTION: Fitch considers all TAB liens to be closed, as successor agencies (SAs) are not permitted to issue new money TABs. In addition, Fitch recognizes the availability of surplus 20% housing set-aside revenues for non-housing TAB debt service.

RATING SENSITIVITIES

MATERIAL CHANGES IN AV CUSHION: Tax base declines that materially decrease pledged revenues could have a negative effect on the rating. Given recent AV stability and growth trends, Fitch believes such shifts are not likely in the near term. Tax base growth that materially increases pledged revenues could have a positive effect on the rating.

CREDIT PROFILE

The city of Oakley (the city) is about 50 miles northeast of San Francisco, and 58 miles southwest of Sacramento. The Oakley Redevelopment Project Area (the project area) is 1,537 acres, or about 15% of the city. It is 61% residential and 17% commercial. Following the dissolution of the former Oakley Redevelopment Agency, the city has taken over as the SA to wind down operations and facilitate debt payments.

CONTINUED AV GROWTH

The project area has experienced three consecutive years of solid AV gains. The recent growth, which has been driven by a recovering real estate market, raised project area AV by 4.4% and 15% in fiscals 2016 and 2015, respectively. Fitch expects AV levels to continue to increase over the near term based on positive changes in the real estate market, at a pace close to that realized in fiscal 2016.

IMPROVED TAB COVERAGE

Debt service coverage on the TABs improved in fiscal 2016 as a result of continued AV growth and lower MADS as a result of a May 2015 refunding of the senior 2003 TABs with debt (not rated by Fitch) on parity with the series 2008 TABs. MADS coverage rose to 1.40x compared to 1.13x in fiscal 2015. Fitch calculated annual debt service for fiscal 2016 is 1.74x. Annual debt service is scheduled to increase from $1.87 million in fiscal 2016 to MADS of $2.3 million in fiscal 2019 and level off through final maturity in fiscal 2030.

Furthermore, the AV cushion improved notably in fiscal 2016, increasing to an adequate 22% from an extremely low 9% the year prior. Fitch expects coverage levels to continue to improve over the near term due to positive changes in the local housing market that are likely to bolster project area AV.

MODERATE CONCENTRATION, VUNERABLE TAX BASE

Despite the positive momentum mentioned above inherent tax base weakness remains, evidenced by the relatively late start of AV recovery and significant peak-to-trough decline. AV dropped a cumulative 29% from fiscals 2008 through 2013. Additionally, the project area has a moderately low ratio of incremental to base year value, which amplifies the impact of AV declines on pledged revenue.

The tax base is moderately concentrated with its top 10 taxpayers accounting for 16.6% of AV and 21.9% of incremental value (IV). The top taxpayers include several shopping centers, as well as commercial and light industrial entities.

BEDROOM COMMUNITY WITH SOUND ECONOMIC CHARACTERISTICS

The city, in north-eastern Contra Costa County, is a bedroom community to the San Francisco and Sacramento employment centers and is home to approximately 39,000 residents. The city experienced strong population growth in the early- and mid-2000s with a corresponding housing boom, which left the city exposed to significant loses during the housing-led recession.

Economic indicators for the city are sound with above average median household income levels, and a low poverty rate. Employment growth was a healthy 2.1% in 2015, above the national average. The city's unemployment rate of 5.7% (December 2015) is comparable to that of the state (5.8%) but is above the nation (4.8%).

REDEVELOPMENT DISSOLUTION - NEUTRAL-TO-POSITIVE IMPACT

Fitch refined its California RDA analysis pertaining to the beneficial impact of dissolution legislation (AB 1X 26) in May 2014. 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 believes it is likely that the continued presence of closed TAB liens and surplus housing revenue availability will remain a feature of California TABs.

COMPLIANCE WITH DISSOLUTION PROCEDURES

Dissolution-related (AB 1X 26) risks are lessening 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. Since dissolution, the successor agency's procedures to manage dissolution have become well-established, lessening operational risks.