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Rating Update:

MOODY'S AFFIRMS RATINGS ON PALM DESERT RDA PROJECT AREA NO. 3 TABS; NEGATIVE OUTLOOK ASSIGNED TO SUBORDINATE LIEN SERIES

23 Dec 2010

APPROXIMATELY $3 MILLION IN DEBT AFFECTED

Palm Desert Redevelopment Agency, CA
Municipality
CA

Opinion

NEW YORK, Dec 23, 2010 -- Moody's Investors Service has affirmed the Baa3 the rating on the Palm Desert Redevelopment Agency's Subordinate Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series C. We also assigned a negative outlook to the subordinate bonds. Concurrently, Moody's has affirmed the Baa2 rating on the agency's senior lien Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A and B. The bonds are secured by the tax increment revenues of the project area net of the housing-set aside.

RATINGS RATIONALE

Total coverage of senior and subordinate lien maximum annual debt service has weakened as the economy has impacted the local tax base. In fiscal 2009, net tax increment revenues were sufficient to provide only 0.95 times coverage of total MADS, which occurs in 2034. In fiscal 2010, MADS coverage improved marginally to 1.00 times, which is still well below the level typically maintained by a Moody's-rated Baa3 California TAB issuer. The project area's 2011 tax base represents a small decline of 0.6% from 2010 resulting in a total assessed valuation of $599 million, still very large for the rating level. However, the erosion in value, albeit small, results in a 0.8% drop in tax increment revenues. This leads to an estimated fiscal 2011 total MADS coverage by net increment revenues of just 0.99 times. The currently narrow coverage of MADs by 2010 revenues combined with what will be less than sum sufficient MADS coverage in fiscal 2011 constitute a notable weakening of credit quality.

Fiscal 2011 tax increment revenues are estimated to be 1.54 times fiscal 2011 debt service. And, it is likely that the tax base will grow to provide sufficient coverage of MADs well in advance of the MADs year. Still, an improvement of total debt service coverage in the short-term will be necessary to preserve the current rating level.

Senior lien debt service coverage was 1.49 times in fiscal 2009, 1.57 times in 2010, and is projected to be 1.53 times in fiscal 2011. Though weakening, these coverage amounts are still sufficient for the rating level on the senior bonds.

What could change the rating -UP

A material improvement in total debt service coverage by net tax increment revenues combined with stabilization and improvement of the tax base.

What could change the rating-DOWN

Continued weakness in coverage and further deterioration of the tax base could apply negative pressure to the rating.

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, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning 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

Michael Wertz
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
250 Greenwich Street
New York, NY 10007
USA

MOODY'S AFFIRMS RATINGS ON PALM DESERT RDA PROJECT AREA NO. 3 TABS; NEGATIVE OUTLOOK ASSIGNED TO SUBORDINATE LIEN SERIES
No Related Data.
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