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Rating Update:

MOODY'S AFFIRMS A2 RATING ON BUENA PARK REDEVELOPMENT AGENCY 2008 TAX ALLOCATION BONDS SERIES A & B

28 Mar 2011

Approximately $74 Million In Debt Affected

Municipality
CA

Opinion

NEW YORK, Mar 28, 2011 -- Moody's Investors Service has affirmed the A2 rating on Community Redevelopment Agency of the City of Buena Park's Consolidated Redevelopment Project 2008 Tax Allocation Bonds Series A and Taxable Tax Allocation Bonds Series B. The bonds are secured by net increment revenues generated in the Agency's consolidated project area, on parity with $15.8 million of the Agency's 2003 Tax Allocation Bonds and $2.4 of the million of the Agency's 2000 Tax Allocation Bonds.

RATINGS RATIONALE

The rating reflects the project area's large size and strong taxpayer diversity. The agency's strong debt service coverage is key to the rating and offsets risks associated with the low Incremental Assessed Value (AV) to total AV ratio and sizable assessment appeals. The Agency may issue additional parity debt, in the near term. A substantial erosion of debt service coverage levels due to additional debt or contraction of AV would put significant pressure on the rating.

REVENUES DERIVE FROM LARGE, DIVERSE PROJECT AREA

Tax increment revenues are generated in a merged project area consisting of five subareas, which together cover half the area of the city of Buena Park. The city is an older, built-out community in Orange County. The population totaled approximately 84,000 in 2010, with income levels below the state and county medians. The consolidated project area is large at 3,940 acres with assessed value (AV) of $4.7 billion in 2011, both figures are above average for the rating level. Incremental AV is very low at 55% of total AV, a credit weakness as it renders the project area more susceptible to AV declines. This could be a particular concern in the current challenging real estate environment. However, in 2010, total AV contracted by only 2.1%, followed by an increase of 0.8%, in 2011, which underscores the inherent stability of the AV and reflects the more mature nature of the tax base, particularly of the residential sector, which accounts for half of the total AV.

One of the strengths of the consolidated project area is its diversity. In addition to the residential sector, commercial properties represent 23%, and industrial, 18%. The top ten taxpayers represent only 18.6% of incremental AV, which equals the typical concentration for the rating. The consolidated project area's component sub-areas differ in size and composition with the largest, Project Area IV, representing 68% of total AV and 52% of total incremental AV. This project area is the newest, largely residential (57% of AV) with a healthy industrial area as well (24%), and top ten taxpayers representing only 29% of total incremental AV. Two of the older sub-areas are expected to expire about 1-3 years before the bonds mature. While together these currently represent over 30% of incremental revenue, Moody's anticipates that growth in the other project areas, particularly Project Area IV, will offset the loss of those revenues over the long run.

STRONG COVERAGE OFFSETS RISK OF DELINQUENCIES

Debt service coverage is expected to be strong throughout the life of the financing, an important credit strength. Coverage of maximum annual debt service by 2011 incremental revenues is a healthy 1.93x. The project area is not covered by the county's Teeter Plan so it needs to absorb any property tax delinquencies; to date these have remained very manageable with collections in 2010 at 97.7%. At the 1.93x coverage level the project area is well protected against delinquencies: at this coverage level the project area could lose tax increment revenue equivalent to that generated by all the top ten taxpayers and more than cover debt service. In fact, the latter is true at the 1.50x coverage level mandated by the current additional bonds test as well as the 1.25x test, which will prevail after 2023. Outstanding assessment appeals could pose a potential threat to the strong debt service coverage. Currently $910 million in AV is under appeal, which in the owners' opinion should be $493 million or $417 million less. If these appeals are successful at the rates of recent years, AV reduction could be as high as $100 million or, 3.8% of incremental AV.

STANDARD LEGAL PROVISIONS INCLUDE TEST FOR SUFFICIENCY OF REMAINING INCREMENT

The reserve requirement is sized using the standard three-part test. The documents require an annual review to determine the sufficiency of remaining increment revenues: in the event that remaining debt service equals or exceeds 95% of the aggregate amount of permitted remaining tax revenues, increment revenues are required to be deposited in a dedicated fund for principal and interest repayment.

What could change the rating-UP

Continued, long-term growth of merged project area AV

Higher debt service coverage structured to be maintained over the long term

What could change the rating-DOWN

Decline in debt service coverage

Extended, material decline in AV

Increased concentration among the top taxpayers

KEY STATISTICS

Project area size: 3,940 acres

Total Assessed Value, 2011: $4709 billion

Average annual growth of AV, FYs 2006-11: 4.6%

Total Incremental AV, 2011: $2.60 billion (55.3% of total AV)

Largest taxpayer as % of incremental AV, FY 2011: 3.5%

Ten largest taxpayers as % of incremental AV, FY 2011: 18.6%

Maximum debt service coverage by FY 2011 revenues: 1.93x

City per capita income, 1999: $18,031 (79% of state; 70% of county)

City median family income, 1999: $52,372 (99% of state, 81% of county)

The principal methodology used in this rating was Moody's Analytic Approach To Rating California Tax Allocation Bonds published in December 2003.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Kevork Khrimian
Analyst
Public Finance Group
Moody's Investors Service

Eric Hoffmann
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
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MOODY'S AFFIRMS A2 RATING ON BUENA PARK REDEVELOPMENT AGENCY 2008 TAX ALLOCATION BONDS SERIES A & B
No Related Data.
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