A drop in assessed values in Cathedral City, a desert city near Palm Springs, resulted in multi-notch downgrades by Standard & Poor’s on the Cathedral City Public Financing Authority’s merged project area tax-allocation bonds.
Several series with a senior priority on tax increment fell to BBB from A. Subordinate-lien — on non-housing tax increment revenue — Series 2007C bonds dropped to BB from BBB-minus.
“The downgrade reflects continued declines in assessed values, which have led to decreased coverage ratios over debt,” S&P analysts said. The fact that the project spans a large and diverse area covering the entire city was considered a plus by the rating agency, which also gave the bonds a stable outlook.
The stable outlook reflects an expectation that the senior bonds have adequate debt-service coverage.
Other positive aspects were that the city has sufficient cash reserves to fund deficits of the subordinate bonds, that taxpayer diversity will continue, and that there will be moderate assessed valuation declines in the next year or two.