LOS ANGELES — Moody's Investors Service has upgraded almost all of the $4.7 billion of California tax allocation bonds it rates.
The debt was issued by former redevelopment agencies, which have been going through a complex dissolution process since laws eradicating them took effect in February 2012. As part of that process, successor agencies were created to wind down the former redevelopment agencies.
Many of the bonds were downgraded to Ba1 or lower by Moody's soon after the dissolution process began in 2012, because changes wrought by the state legislation altered the fundamental flow of tax increment funds to repay the debt.
In a report issued Tuesday, Moody's said it has since upgraded the majority of those bonds back to investment grade.
Some 35 issuers have received three-notch upgrades and a few received five-notch upgrades.
Moody's median rating for California TABs is now Baa1.
"After three and a half years of semiannual payments cycles, the process has generally gone smoothly," said Robert Azrin, a Moody's vice president and senior analyst.
The successor agencies have punctually and properly adhered to procedures for required funding requests, and TAB debt service payments have been approved by the state, analysts said.
Legislation enacted since then has smoothed the process and adjustments by the successor agencies have resulted in upgrades.
Moody's deemed legislation signed by Gov. Jerry Brown on Sept. 22 a credit positive as it simplifies the TABs payment process and eliminated lingering uncertainties about pre-dissolution caps on property tax revenue and time limits on revenue collection. It also pares the state approval process down from twice yearly to once a year on so-called enforceable obligations – those that can receive property tax revenue to pay debt and other obligations.
The ratings also benefited greatly from an improved California economy, strong real estate markets, and from a new administrative and procedural framework to pay tax allocation bonds resulting from the September legislation.
"Property values in California have increased 35% since the RDA dissolution in 2012 and should remain healthy over the near term," Moody's analysts said in the report.
Rising property values have favorably impacted the credit quality of TABs by increasing the incremental assessed values, which results in higher pledged incremental property tax revenues, increased debt service coverage, and less tax increment revenue volatility, according to the report.
