LOS ANGELES — Moody's Investors Service warned again that it may withdraw all of its ratings on tax allocation bonds issued by former California redevelopment agencies.
Moody's in June had downgraded to speculative Ba1 all California redevelopment agency tax allocation bonds that had been rated Baa3 or higher; and at that time placed all RDA ratings under review for possible withdrawal.
In its report Thursday, Moody's said it plans to conclude the review within 90 days.
The ratings agency has 272 credits issued by 94 redevelopment agencies on review for possible withdrawal due to insufficient information, said Greg Lipitz, a Moody's vice president.
The redevelopment agencies were dissolved in 2012 by state legislation.
In June, Moody's said its review was prompted by the lack of clarity in how the changes to the laws governing redevelopment successor agencies would be implemented and how different interpretations of these laws could lead to an even greater probability of default.
"During the next 90 days, Moody's will review those ratings for which successor agencies provide adequate information," analysts said in the report.
"At the end of the 90-day period, or earlier if the successor agency indicates that it does not intend to provide the required information, Moody's will withdraw the rating."
In order to maintain the TAB ratings, Lipitz said Moody's needs to be able to review debt service calculations that incorporate the cash flow changes brought about by follow-up legislation implementing redevelopment agencies' dissolution.
"This information must be provided or verified by a reliable third-party rather than solely the successor agency itself," Lipitz said.
"As in the past, we will also require other, verified data elements, including the current incremental assessed valuation, the base year assessed valuation, the status and value of any debt service reserve funds, and the current assessed valuation of the top ten taxpayers in each of the RDA's project areas with rated debt," he said.
In the Moody's report, analysts said the legislation "has greatly affected the legal framework in which we calculate debt service coverage for TABs."
Currently, counties distribute money to successor agencies in six-month increments, which has caused short-term cash flow problems for some agencies leading to individual downgrades last year. Part of the problem is that bond payments are typically made twice a year in unequal payments, one interest only and one interest-plus principal payment.
The cities who took on successor agency roles have also been unwilling to make short-term loans to their former RDAs, which used to be common before the dissolution, because they fear the state will keep the money rather than paying them back.
Given the requirements of the statutes, and the way in which payments on bonds are made as a result, Moody's ratings going forward will be dependent in large part on reviewing debt service coverage during two semi-annual, calendar year periods — January through June and July through December — rather than on an annual, fiscal year basis, analysts said.