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Rating Action:

Moody's upgrades to Aa3 from A2 Successor Agency to the San Francisco RDA, CA's TAB ratings

01 Apr 2019

New York, April 01, 2019 -- Moody's Investors Service has upgraded to Aa3 from A2 the ratings on the Successor Agency (SA) to the San Francisco Redevelopment Agency (RDA), California's tax allocation bonds (TABs). The upgrade affects $206.3 million in debt outstanding. This rating action concludes the review for upgrade that began on February 7, 2019 in conjunction with the publication of Moody's revised Tax Increment Debt methodology. The outlook is stable.

RATINGS RATIONALE

The upgrade to Aa3 from A2 reflects Moody's revised Tax Increment Debt rating methodology published on February 7, 2019. Broadly speaking, the revisions standardize our approach to California tax allocation bonds with tax increment bonds nationally. More specifically, the revisions recognize the benefits of the closed lien for California TABs and equalize the rating thresholds for debt service coverage. The revisions also put substantially less emphasis on the administrative risks associated with the 2012 dissolution of California's redevelopment agencies, since the administrative process is now quite well established and functioning smoothly.

The upgrade also takes into consideration the strong growth of the agency's already substantial incremental assessed value (IAV), which will continue to expand as a function of the city's very strong and dynamic economy. This growth combined with a declining debt service schedule will drive a steady increase in the agency's solid maximum annual debt service coverage by pledged revenues, most recently at 3.74x. Unlike other SAs in the state, the San Francisco SA can still issue debt in three project areas, though we do not anticipate any new issuance that will materially impact debt service coverage. The rating also reflects the fairly elevated 23.5% taxpayer concentration, which is counterbalanced by a strong 90% ratio of incremental assessed value to total assessed value and strong resident wealth levels.

RATING OUTLOOK

The stable outlook reflects our expectation that incremental revenues will continue to rise as a result of the strong area economy and provide solid and improving debt service coverage.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Material improvement in the ratio of incremental AV to total AV of the combined project areas

- Significant improvement in MADS coverage

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Protracted decline in AV and associated tax increment revenue

- Erosion of debt service coverage levels

LEGAL SECURITY

The legal security for the TABs is tax increment revenue generated in the SA's fiscally merged project areas, net of housing set asides, certain pass-through payments, and county administrative costs.

While they are not all legally pledged, the dissolution laws permit TABs to be paid from all available monies in the agency's Redevelopment Property Tax Trust Fund after payment of pass-through payments and certain administrative charges. This includes the 20% of tax increment that was previously restricted for use only on affordable housing projects and related debt.

USE OF PROCEEDS

Not applicable.

PROFILE

The Successor Agency's tax base encompasses 12 project areas of the former RDA, totaling 2,263 acres. The project areas share a joint debt service reserve fund, with combined tax increment revenue pledged for the repayment of tax allocation bonds issued by the former RDA. The combined total AV of the project areas represents approximately 8.5% of the City and County of San Francisco's (Aaa stable) total AV.

The SA is a separate legal entity from the City of San Francisco. The SA is responsible for winding down the operations of the former RDA, making payments on state approved "enforceable obligations", liquidating any unencumbered assets, with the proceeds to be distributed to other local taxing entities Since San Francisco is a combined city and county, then unlike other rated city RDAs, it does not benefit from the credit enhancement represented by a third party collection and payment of debt service. However, since the city itself is the primary downstream beneficiary of tax increment revenue distribution after payment enforceable obligations, it has an interest in the smooth functioning of the SA.

METHODOLOGY

The principal methodology used in these ratings was Tax Increment Debt published in February 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

Michael Wertz
Lead Analyst
Regional PFG West
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Eric Hoffmann
Additional Contact
Regional PFG West
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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