PHOENIX — San Jose (Calif.) Redevelopment Agency received an upgrade to BBB from BBB-minus from Fitch Ratings affecting $1.5 billion of bonds.
The new rating covers the agency's non-housing tax allocation bonds issued between 1993 and 2008, which were upgraded by Standard & Poor's earlier this year. Fitch said the TABs, which are backed by tax increment revenues and certain set-asides as well as a debt reserve fund, also have a positive outlook. San Jose created the SJRA in 1956 to finance public facilities and affordable housing.
"The upgrade reflects strong assessed value gains in fiscal 2015 and estimated for fiscal 2016 resulting in improved debt service coverage of 1.47 times," Fitch analysts wrote.
A major factor in Fitch's decision was the San Jose Economy, which is enjoying a strong recovery in the aftermath of the great recession. The city of about 1 million people is located in the heart of the technology industry's "Silicon Valley," home to some of the world's richest tech companies. The city benefits from that wealth with low unemployment rates and high wages, Fitch said.
"The city and agency benefit from above-average economic indicators, including median household income at 134% and 154% of the state and national averages, respectively, and a poverty rate about 80% of the national average," Fitch wrote.
But that sector has also experienced significant volatility in recent years, Fitch said, an area of potential concern. The SJRA is also in the midst of some legal wrangling with Santa Clara County. That lawsuit would require that the county stop withholding an estimated $10.5 million of tax revenues for fiscal 2016 derived from voter-approved tax overrides which the agency contends is pledged to bondholders. That case is currently in appeal.