LOS ANGELES — Proposed changes in how Moody's Investors Service rates $6.5 billion in tax allocation bonds in California could mean upgrades for many Golden State redevelopment credits.
The rating agency asks that market participants comment on its proposed revisions to the rating methodology for tax increment debt on its website by March 6.
If the changes are adopted as proposed, Moody's said it expects to put all California redevelopment agency TABs it rates on review for upgrade.
Roughly half of the tax increment bonds issued by the 47 former redevelopment agencies Moody's rates in California could see ratings boosts of one to two notches if the methodology is adopted.
The changes would affect 18 other issuers outside California, of which two may be put on review for downgrade if the methodology is adopted, Moody's said.
California had more than 400 redevelopment agencies with an estimated $20 billion in debt that were shut down as a result of legislation enacted in 2011.
"We intend for this document to help investors, issuers, and other interested market participants understand how key quantitative and qualitative risk factors are likely to affect ratings for tax increment bonds," Moody's Vice-President/Senior Analyst Robert Azrin said in the report.
The methodology change would update Moody's December 2013 California TAB methodology.
Analysts said the new methodology would incorporate what they called "the smooth implementation of legislative changes" during the California dissolution process so far as it relates to the timely payment of debt service on the TABs.
The current median rating for California TABs is Ba1 as a result of Moody's analysts factoring in risk in the wake of the dissolution, according to the report. The median rating for such TABs in other states is A3, Moody's said.
The primary factors driving Moody's credit analysis for tax increment debt are: the characteristics of the project area and tax base; the financial strength of the project area; the debt and legal structure including the flow of funds structure for California TABs; and the socioeconomic strength of the local economy.
The proposed methodology would introduce a scorecard involving a standard approach applicable to all tax increment debt nationally except for California. The Golden State would be scored using an approach involving an additional credit factor with other factors modified and weighted toward the state's unique characteristics resulting from the state's dissolution of the redevelopment agencies.
