NEW YORK - Standard & Poor's Ratings Services said it revised its outlook to negative from stable on the following Montclair Redevelopment Agency, Calif.'s tax allocation bonds (TABs) and tax allocation refunding bonds: Series 2004 TABs secured by net tax increment revenue of project area IV (A); Series 2006A taxable tax allocation refunding bonds, and series 2006B TABs, secured by net tax increment revenue of project area V (A-); and Series 2007A TABs and 2007B tax allocation refunding bonds, secured by net tax increment revenue of Redevelopment Project Area No. III (BBB).
At the same time, Standard and Poor's affirmed its underlying ratings (SPURs) on these bonds.
"The negative outlook reflects our view of the agency's exposure to potential litigation if it fails to pay $7.9 million in series 2008 tax allocation notes due June 1, 2012," said Standard & Poor's credit analyst Sussan Corson. Standard & Poor's does not rate the 2008 notes, which were secured by net tax increment revenue from the Mission Boulevard Joint Redevelopment Project, and the agency has no other parity debt secured by tax increment from this project area.
While the agency's notes outstanding are secured by net tax increment revenue from a separate project area and there are no provision in the bond documents for cross-default with the series, 2007A, 2007B, or 2006A bonds, or the 2006B or series 2004 TABs, there is uncertainty surrounding the outcome of the payment on the series 2008 notes and how this might affect the agency.
A new law, ABx1 26, dissolved redevelopment agencies in the state as of Feb. 1, 2012; the city of Montclair is acting as successor agency to the Montclair Redevelopment Agency. According to successor agency officials, they had intended to seek a validation action and refund the notes, although market access is still uncertain and the legal revenue pledge securing the new refunding debt could require further clarification.
While officials estimate aggregate cash balances across all project area funds, capital project funds, and housing funds could be sufficient to pay off the notes, they do not know if all cash from these unpledged sources could be legally available for payment on the notes. Successor agency officials indicate that the fund balances available for the Mission Boulevard Project Area are insufficient to pay the notes in full at maturity.
Montclair (estimated population: 35,876) is in southwestern San Bernardino County, about 30 miles from downtown Los Angeles.