Fitch Affirms Comm Redev Agency of the City of Palm Springs, CA's $14.7MM Series 2007A&B TABs at 'A'

NEW YORK--(BUSINESS WIRE)--In the course of routine surveillance, Fitch Ratings affirms its 'A' rating on the Community Redevelopment Agency of the City of Palm Springs, California's (the agency) outstanding tax allocation bonds as follows:

--$12,770,000 series 2007A Merged Project No. 1;

--$1,910,000 series 2007B Merged Project No. 1 (taxable).

The Rating Outlook is Stable.

The 'A' ratings reflect the strong debt service coverage by current tax increment revenue, the project area's well-established nature and key role played in Palm Springs' economy, and low ratio of base year valuation to current year, the result of solid assessed valuation (AV) and tax increment growth until recently. For fiscal 2010, AV growth slowed, as the residential component experienced a decline that was more than offset by gains in commercial value. However, Fitch believes that with a marked slowdown in new construction, the project area is likely to experience an AV reduction for fiscal 2011. Nonetheless, future debt service coverage remains satisfactory even under harsh stress scenarios. Also offsetting the credit strengths is the city's somewhat concentrated economic base which relies on the economically sensitive tourism industry and residential property development. Wealth levels are above average. The additional bonds test (ABT) is a satisfactory 1.25 times (x) maximum annual debt service (MADS) after the maximum percentage of pass-through payments is netted out of gross tax increment revenue.

The series 2007A and series 2007B bonds are secured by net tax increment revenue generated in the agency's merged project area 1, which covers 1,864 acres, including the city's central business district and key retail, hotel zones, and a good mix of residential and other commercial properties. Fiscal 2010 AV of $1.48 billion represents 15% of the city's total AV, although the area represents a small 3% of the city's total geographical size. The pace of development has slowed considerably. While AV rose 2.2% for fiscal 2010, the gain masks an almost 5% decline in residential property values which were more than offset by new commercial taxpayers. However, Fitch believes that with limited construction underway and the housing market likely to stay weak, AV may decline for fiscal 2011.

Net tax increments provided an estimated 3.3x debt service coverage in fiscal 2009, and for fiscal 2010 coverage is expected to drop to 2.9x as AV grew at a slower rate than principal and interest. These levels are sound but below fiscal 2008's high of 3.7x. When supplemental taxes are excluded, annual and MADS coverage of debt service remains sound at 2.7x and 2.2x, respectively, in fiscal 2008. Expected pledged revenue for fiscal 2010 covers MADS a still good 2.3x, since MADS does not occur until fiscal 2017.Coverage levels remain sound for Fitch stress tests including no growth and full pass through payments applied to all years met the ABT requirement in every year through final bond maturity. Under another extreme stress scenario, the loss of top ten taxpayers as well as severe loss of 25% of AV provides very satisfactory MADS coverage of 2.3x and 1.6x, respectively.

Merged Project Area No. 1's fiscal 2010 AV of $1.49 billion consists of 36% residential and 62% commercial properties. Growth had been strong prior to the current downturn, rising 6.4% in fiscal 2009 and a very high 12.7% per year on average fiscal 2004. The base is a low $333.4 million, creating a strong increment cushion. The tax base is relatively diverse for a tax increment project, with the top ten taxpayers making up 12.6% of fiscal 2009 AV and 15.8% of IV.

Financial operations are satisfactory. The agency will consider borrowing $5.06 million from its housing fund to make the educational revenue augmentation funds (ERAF) payment to the state for fiscal years 2010 and 2011. The agency would be required to repay these amounts within the statutory time frame.

Additional information is available at 'www.fitchratings.com'.

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Fitch Ratings
Janet H. Martin, 212-908-0507, New York
Amy S. Doppelt, 415-732-5612, San Francisco
or
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