APPROXIMATELY $130 MILLION IN DEBT AFFECTED INCLUDING THE CURRENT ISSUE
Subordinated Housing Set Aside Revenue Bonds, Series 2011A-T
Expected Sale Date
Tax Allocation Bonds
NEW YORK, Mar 1, 2011 -- Moody's Investors Service has downgraded to A2 from A1 the rating on
the Redevelopment Agency (RDA) of the City of Oakland's Subordinated Housing Set
Aside Bonds, Series 2006A and2006A-T. We have also assigned an A2 rating to the
RDA's current sale of Series 2011 A-T Subordinate Housing Set Aside Bonds.
The downgrade reflects the moderate erosion of the project areas' notably large
assessed value, which has occurred over the last two years and appears likely to
continue for a third. The decline in assessed value also weakened the RDA's
ratio of incremental to total assessed value, which is another key rating
element. The rating action also incorporates the significantly narrowed debt
service coverage that will result from the sale of the Series 2011 bonds.
Pledged revenues consist of the housing set-aside portion of tax increment
revenues generated in all ten of the Agency's project areas combined, after
payment of debt service on a senior debt issue. The senior issue is secured by
both the housing and non-housing revenues from just two of the ten project
areas, and this senior lien is now closed. Moody's notes that over the life of
the debt four of the ten project areas will drop out of the revenue stream, and
one of these is currently the largest income generator. However, even in the
absence of these four project areas, the tax base will be quite sizeable and the
bonds have been structured to maintain adequate coverage. The bonds are secured
by the combined 20% housing set aside revenues of each of the RDA's project
PRESSURED ECONOMIC ENVIRONMENT UNDERSCORED BY CONSECUTIVE YEARS OF
ASSESSED VALUE DECLINE
In 2010 and 2011, the total assessed valuations of the project areas fell by
3.5% and 4.7% respectively. The agency anticipates another 3.5% decline in 2012
owing to an expectation that $522.6 million will be granted in property value
appeals. The number of property tax appeals has risen sharply since 2006 with
2,332 filings through 2010. There are still 1,263 appeals currently outstanding,
which represent approximately 22% of the agency's total value. The project areas
cover 14,420 acres, which is 42% of the City of Oakland. The $14.6 billion tax
base remains one of the largest in the state despite the recent losses as
the city has absorbed the impacts of the economic downturn. As a result of the
assessed value decline, the ratio of incremental to total assessed value has
fallen to just 61%, which is a fairly weak level for a Moody's rated California
redevelopment agency project area.
The project areas feature a satisfactory level of taxpayer diversity with the
top ten taxpayers representing only 21% of the total incremental value. No
single taxpayer accounts for more than 4% of the incremental value. The
approximately 41,000 parcels are significantly residential at 39%, though
commercial enterprises make up a meaningful 28% of the total assessed value.
Commercial interests are also the primary filers of property tax appeals with
most residential appeals having already been addressed during the Proposition 8
reductions of the last two years. Oakland appears to have passed through the
worst of the economic recession and to have entered a period of slow recovery.
Nonetheless, appeals and return to a protracted economic downturn could continue
to pressure the local tax base.
CURRENT SALE WILL SIGNIFICANTLY DIMINISH DEBT SERVICE COVERAGE TO A NARROWER BUT
STABLE LEVEL ASSUMING NO ADDITIONAL ISSUANCES
Following the current sale, the agency's coverage of maximum annual debt service
will fall to approximately 1.53 times from 2.87 times prior to the sale. Under
an unlikely zero assessed value growth assumption, annual coverage is
approximately 1.50 times. Debt service has been structured to decline as project
areas reach their time limit for debt repayment. This includes the
central district project area, which reaches its repayment limit in 2022 and
contributes 47% of the housing set aside revenues. Accordingly, debt service
falls 47% in 2023 to maintain the stability of coverage. It should be noted that
the agency plans to adopt a plan extension for central district in 2011, though
this could be jeopardized by legislation at the state level that could eliminate
redevelopment agencies or limit their ability to take on additional debt. Using
a less conservative growth assumption of 2% after 2012, the agency's
strongest level of coverage would occur in 2022 at 1.87 times maximum
annual debt service with annual coverage thereafter of greater than 2 times
to maturity in 2041. Coverage could weaken with the issuance of
additional bonds, though the agency asserts that it has no additional
parity debt plans.
The Agency does not suffer from any taxpayer delinquencies, since the County
effectively uses a method of tax allocation similar to the Teeter plan. Under
this approach, the agency's tax revenues are made whole regardless of the actual
number of delinquencies.
STANDARD TAX ALLOCATION DEBT LEGAL COVENANTS
The Agency's key legal covenants governing the current transaction are typical
for tax allocation bonds, including a cash-funded standard debt service reserve
fund and a 1.25x additional bonds test. Proceeds from the sale will be used to
finance low and moderate income housing projects within the project areas.
What could change the rating-Up
Significantly improved assessed valuation growth resulting in
materially stronger maximum annual debt service coverage
What could change the rating-Down
Continued declines in debt service coverage or assessed valuation
2011 Assessed valuations: $14.6 billion
Total acreage: 14,420
Projected maximum annual debt service coverage 1.53 times
Top ten taxpayer concentration: 21% of incremental value
The principal methodology used in this rating was Moody's Analytic Approach To
Rating California Tax Allocation Bonds published in December 2003.
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
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.
Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S DOWNGRADES TO A2 FROM A1 THE RATING ON OAKLAND REDEVELOPMENT AGENCY'S SUBORDINATED HOUSING TAX ALLOCATION BONDS
Moody's Investors Service
250 Greenwich Street
New York, NY 10007