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Rating Action:

Moody's Upgrades Riverside County, CA's Lease-Backed Debt to A1, Affirms POBs at A2, Assigns Stable Outlook

06 Oct 2016

New York, October 06, 2016 -- Summary Rating Rationale

Moody's Investors Service has upgraded the underlying rating of Riverside County, CA's lease-backed debt to A1 from A2, affirmed the A2 rating on its pension obligation bonds (POBs), and assigned a stable outlook to these ratings. The ratings apply to $404 million in lease-backed debt and $304.5 million in POBs.

The A1 underlying rating for the lease revenue bonds and certificates of participation (COPs) is one notch lower than Moody's Aa3 issuer rating on the county. The notching reflects a standard legal structure for a California abatement lease financing and leased assets that we view as "more essential." The notching also reflects the strong legal features of California general obligation bonds that are not shared by lease revenue debt.

The A2 rating for the POBs is two notches lower than the county's Aa3 issuer rating. The notching reflects their lesser security, since no asset or specific revenues is pledged, and the relatively poor performance of POBs in Chapter 9 bankruptcies compared to other types of municipal obligations.

The rating action on the county's lease-backed debt concludes a review undertaken in conjunction with the publication on July 26, 2016 of the Lease, Appropriation, Moral Obligation, and Comparable Debt of US State and Local Governments Methodology.

Rating Outlook

The stable outlook assigned to the ratings on the county's lease revenue bonds, certificates of participation, and POBs removes the negative outlook that had been placed on these ratings in February 2013. At that time, we viewed the county finances as poorly positioned for possible, further economic weakness. However, the county's financial position has improved and, despite some continued expenditure pressures, we now expect it to remain stable.

The stable outlook on these ratings is now consistent with the stable outlook we have on the county's Aa3 issuer rating, reflecting the strength of the tax base, a low debt burden, and our view that the county will maintain its financial position, despite its being below the median for the rating level.

Factors that Could Lead to an Upgrade to Lease-Backed Obligations and POBs

Improvement of the county's general credit profile

Factors that Could Lead to a Downgrade to Lease-Backed Obligations and POBs

Deterioration of the county's general credit profile

Legal Security

The county's obligation to make all POB payments of interest and principal are imposed by law and are absolute and unconditional. Under the trust agreement, the county is required to prepay its fiscal year debt service requirements to the trustee no later than July 31 of each year.

The COPs and lease revenue bonds are secured by lease payments made by the county for use and occupancy of the leased assets, which are as follows.

The leased asset for the COPs 2006 Series A (Capital Improvement Projects) is the Perris Complex, a police station, evidence storage building, repair-fuel shop, and family health center.

The leased asset for the COPs 2007 Series A and B is the County Administrative Center, TLMA Building, Corona Administration Center, Library Administration Building, the building at the Santa Rosa Plateau Nature Preserve, the Downtown Riverside Parking Structure, and five mental health facilities.

The leased asset for the COPs 2009 Series B (Larson Justice Center Refunding) is the Larson Justice Center, which includes a courthouse and associated offices.

The leased asset for the Leasehold Revenue Bonds (Riverside County Hospital Project), Leasehold Revenue Bonds 1993 Series B (County of Riverside Hospital Project), and Leasehold Revenue Bonds 1997 Series C (County of Riverside Hospital Project) is the County's hospital building and site.

The leased asset for the Lease Revenue Bonds (County Facilities Project) 2008 Series A is the Bermuda Dunes Regional Park Site, Mecca community library, a sheriff's substation, North Palm Springs multi-service center, Palm Desert sheriff station, and Rubidoux family care center.

The leased asset for the 2008 Lease Revenue Bonds Series A (County of Riverside Capital Project) and Variable Rate Demand Leasehold Revenue Refunding Bonds Series 2008A (Southwest Justice Center Refunding) is the Southwest Justice Center.

The leased asset for the Lease Revenue Bonds 2012 CAC Refunding Project is the County Administrative Center Annex, which includes a building, parking structure, and land.

The leased asset for the Lease Revenue Bonds 2012 Taxable Series A and B (County of Riverside Capital Projects) is a medical center building on a 38-acre site and a medical center campus that includes 58 acres with a nursing building, dialysis facility and office building.

The leased asset for the Lease Revenue Refunding Bonds (County Facilities Projects) Series 2012 is the Blythe County Administrative Center, Coachella Valley Animal Campus, and Mecca Family Service center and Community Health Clinic.

Use of Proceeds

Not applicable.

Obligor Profile

Riverside County is located in Southern California and encompasses 7,177 square miles. The county is the fourth largest county in the state by area and stretches 185 miles from the Arizona border to within 20 miles of the Pacific Ocean. In 2016, the estimated population of the county is 2.35 million.

Methodology

The methodologies used in this rating were US Local Government General Obligation Debt published in January 2014 and Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Regulatory Disclosures

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Lori Trevino
Lead Analyst
Regional PFG West
Moody's Investors Service, Inc.
One Front Street
Suite 1900
San Francisco 94111
US
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Eric Hoffmann
Additional Contact
Regional PFG West
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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