Successor Agency To Cathedral City Redevelopment Agency, CA Subordinate-Lien Bond Rating Raised To 'BBB' From 'BBB-'

SAN FRANCISCO (S&P Global Ratings) April 19, 2019--S&P Global Ratings raised its long-term rating on the Successor Agency (SA) to Cathedral City Redevelopment Agency (RDA), Calif.'s series 2007C subordinate tax allocation revenue refunding bonds (TABS) to 'BBB' from 'BBB-'. At the same time, S&P Global Ratings affirmed its 'BBB+' long-term and underlying ratings (SPUR) on the SA's series 2000A, 2004B, 2007A, 2007B, and 2014A TABs. The outlook is stable.
"The upgrade on the subordinate TABs reflects our view of the continued growth in the merged project area, which has resulted in higher assessed value (AV), growth in pledged revenues, and higher maximum annual debt service (MADS) coverage on both the senior and subordinate liens," said S&P Global Ratings credit analyst Li Yang.
The rating reflects what we view as the SA's:
  • Good 1.53x MADS coverage for the senior-lien bonds and adequate 1.27x MADS coverage for the subordinate-lien bonds;
  • Mature tax base with a volatility ratio of 0.10, which indicates moderately low sensitivity in incremental revenues to overall AV fluctuations; and
  • Low concentration among the merged project area's taxpayers, with the top 10 taxpayers representing only 4.5% of total merged project AV.
The stable outlook reflects our view of adequate-to-good MADS coverage for the senior- and subordinate-lien non-housing bonds. Given the growth of merged project area AV, low volatility ratio, and diverse tax base, we do not expect to change the rating in the next two years.
We could raise the rating if there is a continuing upward trend in AV with accompanying increases in debt service coverage.
Although we do not expect it, should AV decline or the SA fail to manage and prioritize its debt obligations in a timely manner in accordance with the trust indentures, we could lower the rating.
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