Moody's Investors Service is requesting market participants to comment on a proposed rating methodology for tax increment debt.
The methodology applies to the $6.5 billion in Moody's rated California tax allocation bonds issued by 47 former redevelopment agencies as well as the debt of 18 issuers in other states across the U.S.
If the methodology is adopted as proposed, Moody's expects to put all California tax allocation bonds (TABs), related to over 90 different project areas, on review for upgrade.
Following the review, Moody's could upgrade half of the ratings on the TABs by an average of one to two notches. The proposed methodology is calibrated to incorporate the smooth implementation of legislative changes over the last three years related to timely payment of debt service on the TABs. For the 23 tax increment bonds outside California, Moody's may put two ratings on review for downgrade if the methodology is adopted as proposed.
The rating approach described in the proposed methodology applies to debt supported by incremental property tax revenues only and does not apply to bonds supported by incremental sales tax revenue or any other non-property tax increment.
The proposed methodology would update, replace and expand nationally the California Tax Allocation Bonds, December 2013 methodology.
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 that assigns weights and values to the factors Moody's considers most important in tax increment bond analysis. The scorecard is composed of: a "Standard Approach" applicable to all tax increment debt nationally except for California; and a "California TABs Approach", which introduces an additional credit factor and modifies and reweights others within the "Standard Approach." The "California TABs Approach" reflects the unique features of tax increment debt in California following the state's dissolution of the redevelopment agencies and the associated substantial structural changes in the funds flow.
"We intend for this document to help investors, issuers, and other interested market participants understand how key quantitative andqualitative risk factors are likely to affect ratings for tax increment bonds," says Vice-President/Senior Analyst Robert Azrin.
The proposed methodology, however, does not offer an exhaustive treatment of all factors that Moody's reflects in its ratings, but should enable the reader to understand the considerations that are usually most important for ratings in this sector.
Moody's invites market participants to respond to the request for comment by March 6, 2015, by submitting their comments on the Request for Comment Page on
