Standard & Poor's Ratings Services lowered its rating on Monrovia Redevelopment Agency, Calif.'s bonds issued for the Central Redevelopment Project Area No. 1 to BBB-plus from A-minus.
The outlook is stable.
"The downgrade reflects our assessment of management practices after the successor agency did not previously reserve for future debt service on its recognized obligation payment schedule and set aside all pledged tax revenue for senior debt service, as required in the trust indenture provisions," said Standard & Poor's credit analyst Sussan Corson.
Furthermore, S&P believe the Los Angeles County Auditor-Controller's post-dissolution diversion of pledged override tax revenue to the city of Monrovia, rather than to the successor agency's redevelopment obligation retirement fund, obfuscates the indenture flow of funds and further increases the potential for cash flow disruption.
The ratings also reflect the bonds': uneven semi-annual senior debt service payments, which require the SA to include reserves on its future recognized obligation payment schedule to make timely senior debt service payments without accessing senior debt service reserves; nonrated surety reserves held for about 60% of the senior debt service reserve balances; and moderate concentration among the leading 10 taxpayers in the project area, which represents 29% of incremental assessed value (AV), and exposure to tax delinquencies since Los Angeles County does not participate in the Teeter Plan.
These weaknesses are mitigated somewhat by: good 1.39x combined nonhousing and housing senior maximum annual debt service coverage assuming a 1% tax rate and assuming consistently successful subordination of all eligible pass-through payments; recent demonstrated successful subordination of some pass-through payments under the processes of new law, maximizing available revenue on January 2013 to cover senior bond obligations; series 2012 subordinate refunding taxable allocation bond trust indenture provisions, which require the prompt transfer of first available tax revenue in the RORF to the trustee's debt service fund first for full senior annual debt service before transfers for subordinate debt service payments; a general SA covenant in the series 2012 subordinate indenture that the SA will include on its ROPS all scheduled debt service and amounts necessary to reserve for annual debt service, as well as replenishment of debt service reserve accounts, to the extent necessary. No ability to issue additional debt as long as the series 2012 subordinate bonds are outstanding based on a covenant in the series 2012 subordinate bond indenture, as well as limitations for additional debt under AB 1484; and growing project area AV trends and a mature, diverse tax base with a volatility ratio of 0.15, which indicates modest-to-low sensitivity in incremental revenues to overall AV fluctuations.
The stable outlook reflects that in the future the SA will request the full amount necessary on its ROPS, promptly transfer available RORF monies and prioritize senior debt service payments over subordinate debt service, and send requests to the LA County AC to subordinate pass-through payments, as necessary to meet trust indenture covenants and make timely annual debt service payments.
The outlook also reflects that pending litigation against the SA will not impede or delay pledged tax revenue available for debt service. While S&P doesn't expect to raise the rating in the next two years, should the project area AV grow considerably to boost debt service coverage from tax revenues available for the redevelopment property tax trust fund S&P could raise the rating. Should AV decline or the SA fail to manage and prioritize its debt obligations in a timely manner in accordance with the trust indentures, S&P could lower the rating.
Monrovia (estimated population of 36,727) is a largely built-out city at the edge of the San Gabriel Mountains in northern Los Angeles County, about 20 miles northeast of downtown Los Angeles.
