LOS ANGELES - Fitch Ratings could upgrade a number of ratings on California successor agencies to former redevelopment agencies after a special review of tax allocation bonds over the next three months.
The agency said Thursday that it is reviewing the redevelopment debt following analytical refinements to how it views the beneficial impact of dissolution legislation.
"Fitch will now consider California TAB liens to be closed and surplus housing revenues to be available for non-housing TAB debt service, as applicable," Fitch said. "These changes likely will result in a moderate number of California TAB upgrades."
Fitch previously reviewed its California TAB ratings shortly after state legislation dissolving redevelopment agencies went into effect in 2012.
The agency said during that time it considered the legislation's negative effects on credit quality, but not potentially positive effects.
"Fitch's position conservatively reflected the acute degree of legislative, administrative, and judicial uncertainty surrounding dissolution," analysts said. Uncertainties included over 100 dissolution-related lawsuits filed, clean-up legislation, and numerous administrative problems at all applicable levels of government.
It has been two and a half years since dissolution, and six recognized obligation payments schedule cycles have passed. Fitch said during this time, two positive provisions have benefited applicable successor agencies with no successful legal challenges to date.
The first is housing surplus availability. Formerly unavailable housing revenues have been made available to pay non-housing TAB debt service after payment of housing TABs.
The second is that all TAB liens have been effectively closed, as successor agencies are not permitted to issue new money TABs.
In addition, the administrative process for agencies has matured significantly, the courts have ruled on precedent-setting cases supporting the legality of dissolution, and related legislative uncertainty has lessened, Fitch said.
"Although uncertainties remain, Fitch views the continued presence of closed TAB liens and surplus housing revenue availability as more likely than not to remain a feature of California TABs, and will immediately begin considering these features in its credit analyses," analysts said.
TABs most likely to benefit from closed liens had open liens prior to dissolution and have high debt service coverage levels compared to their rating categories.
TABs most likely to benefit from surplus housing availability issued proportionately less housing TABs than non-housing TABs and have at least moderate debt service compared to their rating categories.
Fitch expects to complete its special review by the end of July.
