Fitch Affirms Cotati CRA, CA TABs at 'A'; Outlook Stable

Tools

NEW YORK--(BUSINESS WIRE)-- As part of its continuous surveillance effort, Fitch Ratings takes the following rating actions on Cotati Community Redevelopment Agency, CA's bonds:

--$6.3 million 2001 subordinate tax allocation bonds series A (Cotati Redevelopment Project) affirmed at 'A'.

The Rating Outlook is Stable.

KEY RATING DRIVERS

Sound Debt Service Coverage: Annual debt service coverage for the agency's series 2001 and 2004 tax allocation bonds has exceeded 4.13 times (x) the past four years, and is estimated at 3.83 in fiscal 2011, based on unaudited information. Under a zero AV growth scenario, coverage of maximum annual debt service is forecasted to remain above 3.34x and performs well under various Fitch stress tests.

Stable Project Area Tax Base: Despite recent assessed valuation (AV) declines of 12% in total over the past three years, the largely residential (57%) and commercial (22%) tax base remains sizable, in relation to the debt obligation, at $463.4 million with a high incremental value (IV) to base year AV ratio in fiscal 2011 at over 5x.

Diverse Project Area: Located in the downtown of Cotati and including the Civic Center, the project area is large at 429 acres or over 50% of the city tax base and diverse among the top 10 taxpayers at 15% of IV in 2011, led by Lowes HIW, Inc at 5.5% complemented by other commercial and industrial properties.

No Additional Debt Issuance Expected: The time period to issue additional debt has passed and there are no plans to extend or amend the project area and no additional leverage is expected.

Legislative Changes: Recently adopted state legislation provides for the dissolution of redevelopment agencies in California unless they agree to make specific ongoing payments of tax increment revenues to the state. The Cotati Community Redevelopment Agency intends to make all payments required to continue operations under the new legislation, which is currently under review by the state supreme court. Transfers of tax revenues to the state, should they be upheld, are expected to remain subordinate to debt service.

SECURITY

The subordinate 2001, series A tax allocation bonds (TABs) are special obligations payable from Cotati redevelopment project area gross tax increment revenues, less certain fees, pass-throughs and the 20% housing set aside. The 2001 subordinate TABs are parity with the issuer's series 2004 TABs.

The 2001 subordinate TABs, series A (2001A) were originally issued as secured by a subordinate lien on tax increment revenues after the payment of 1993 series bonds. The series 1993 bonds were refunded with series 2004 bonds which also refunded series 2001B subordinate bonds resulting in the 2001A bonds becoming on parity with the 2004 bonds which are secured by gross tax increment revenues less net of certain fees, pass-throughs and the housing set-aside.

CREDIT PROFILE

Project Area

The Cotati Redevelopment project area, formed in 1986 and amended in 2004, encompasses a total of 429 acres of commercial, industrial, housing and public land uses in the downtown area and includes the civic center. Multiple development projects led to a 50% increase in the project area tax base between 2004 and 2008 with growth slowing over the past three years to a small total decline of 12% from 2008 to 2011. However, the project area tax base remains a sizable $463 million in 2011, compared to a base year value of $74 million. A modest project area AV decline of 1% is expected for fiscal year 2012. The top ten taxpayers comprise a low 15% of the project area's total IV in 2011 led by Lowes HIW Inc. at 5.5%. Sonoma County participates in the teeter plan so the agency receives 100% of its annually levied tax increment revenues.

Debt Service Coverage

Following the tax base declines, annual gross pledged revenues have stabilized around $3.9 million in fiscal 2011 and continue to provide strong coverage of combined series 2001A and 2004 annual debt service at over 3.83x. Fitch stress tests indicate maximum annual debt service (MADS) coverage in fiscal 2012 of over 2.81x based on the loss of the top ten taxpayer (15%) and zero AV growth. An immediate AV decline of 44% would be required for MADS on the TABs to fall to 1.0x.

Debt service coverage levels are expected to remain strong given the low likelihood of additional debt issuance. Annual debt service is level around $820,000, increasing to MADS of $840,000 million in 2020 based on current debt outstanding amortization schedule with a final maturity in 2036.

Agency unreserved fund balances remain sizeable at $8 million in total at fiscal 2010 year-end after payment of approximately $1.3 million to fund required state educational revenue augmentation fund. An additional payment of $270,000 was made in fiscal 2011. The payments were subordinate to TABs debt service. The agency will focus on various projects including economic development and capital improvements to the intermodal transit facility, the Old Redwood Highway, housing projects and bus shelters.

Economy

The City of Cotati is located in Sonoma County, approximately 45 miles north of San Francisco. The city has made a concerted effort to maintain sound growth and adopted downtown development plans in 1991 and 2009. As a result, overbuilding and tax base declines following the boom-years have not affected Cotati. With a small, diverse labor base of its own, Cotati's 7,500 residents also have access to greater area employment. Just outside the city, in Rohnert Park, is Sonoma State University with 8,000 students and 1,500 employees. Sonoma County leading employers include the agricultural, tourism and government sectors. County unemployment rates remain below state levels and slightly above national levels. Overall city debt levels are low at $1,817 per capita. City financial performance remains sound with an expected general fund balance of $875,000 or 21% of budget for fiscal year end 2011.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, and IHS Global Insight.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

CONTACT:

Fitch Ratings
Primary Analyst
Bernhard Fischer, +1-212-908-9167
Director
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Karen Ribble, +1-415-732-5611
or
Secondary Analyst
Scott Monroe, +1-415-732-5618
or
Committee Chairperson
Kathryn Masterson, +1-415-732-5622
Senior Director
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com