Fitch Ratings said it has downgraded to BB from BBB Baldwin Park Financing Authority, Calif.'s $4.1 million sales tax and tax allocation refunding bonds, series 2003.

The TABs are placed on Rating Watch Negative.

The series 2003 bonds are limited obligations of the authority, payable from a first lien on sales tax and incremental property tax revenues derived from the Puente Merced project area and surplus tax increment revenues of the San Gabriel River, Delta and Sierra Vista project areas.

These three project areas were merged with the Puente Merced project area in April 2000 by ordinance of the city of Baldwin Park. The bonds are additionally secured by a cash-funded debt service reserve fund equal to maximum annual debt service.

The downgrade reflects information received by the successor agency to the Baldwin Park RDA that it will tap its DSRF to pay upcoming August and September debt service requirements on three of its four outstanding TABS.

The draw is due to much lower than expected tax increment distributions from the county under AB 1X 26, insufficient available cash reserves and lack of clarity as to the nature of the discrepancies.

Payment of series 2003 August 1st debt service will not require a DSRF draw due to pledged sales tax revenues on hand and an advance on budgeted/anticipated sales tax revenues.

Credit quality is further eroded by the increased dependence upon volatile sales taxes to pay series 2003 debt service as a result of the shortfall in tax-increment distributions. Sales taxes generated within a small commercial development have fluctuated falling 40% between fiscals 2007 and 2008. Collections have failed to fully cover maximum annual debt service (MADS) in recent years.

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