The Successor Agency to the San Francisco Redevelopment Agency, CA 's hotel occupancy tax revenue bonds (A1 stable) benefit from the city's underlying economic strength, which remains sound despite the effects of the coronavirus pandemic on hotel occupancies and room rates, supported by robust resident wealth and income metrics.

The bonds are supported by an exceptionally narrow special tax pledge of hotel room tax revenues collected from 13 hotels located mostly in the vicinity of the Moscone Convention Center. Maximum annual debt service (MADS) coverage was exceptionally strong through the last audited fiscal year, but unaudited results for fiscal 2021 show a plummet in revenue, resulting from the pandemic-driven shut down of tourism in San Francisco, bringing coverage to a still solid level consistent with the rating. While debt service coverage has declined materially, our expectation is that pledged revenues will recover sufficiently to maintain satisfactory coverage through final bond maturity in 2025.

Bondholders benefit from satisfactory legal covenants, including a strong 3.0 times additional bonds test (ABT), though following the 2012 dissolution of redevelopment agencies by the state, the successor agency has no authority to issue new debt in these project areas, regardless of repayment source, so the lien is effectively closed. Should the agency's hotel tax revenue be insufficient, there is a high likelihood that the city would step in to fund debt service on the bonds from its general fund, a factor which materially strengthens the credit profile for the agency's hotel tax bonds and fully offsets the weakness posed by the limited cash funded debt service reserve fund, which is sized at 50% the standard three-part test.