The San Diego Regional Transportation Commission's senior lien sales tax bond rating was upgraded to Aa1 from Aa2 by Moody's Investors Service.
The upgrade affects $2.3 billion in sales tax bonds. The outlook was revised to stable from positive.
At the same time, Moody's upgraded the rating on the commission's subordinate lien bank bonds, which are secured by a subordinate lien on the 0.5% sales tax, to Aa2 from Aa3.
"The upgrade to Aa1 for the senior lien bonds incorporates the strong increase in sales tax revenue in recent years, strengthened debt service coverage, and continued growth of the robust regional economy," Moody's analysts wrote in Tuesday's ratings report.
The Aa2 rating on the bank bonds reflects the subordinate nature of the pledge and is one notch lower than the senior sales tax bonds.
The commission is a component unit of the San Diego Association of Governments, a regional planning organization, and is responsible for providing improvements to the transportation system and other county public infrastructure systems funded with the sales tax.
A SANDAG spokeswoman didn't immediately return a request for comment.
Neither the Commission, nor SANDAG, operates transit services. Transit operations in the county are the responsibility of the San Diego Metropolitan Transportation System and North County Transit District.
The upgrade also "reflects the commission's improved debt structure to fully fixed-rate long-term debt following the refunding of outstanding variable rate bonds and termination of associated swaps," Moody's analysts wrote.
Moody's also cited "the broad nature of the pledged revenues and the strength and diversity of the San Diego County economy," which holds a AAA Moody's rating, with a stable outlook.
The bonds also have solid legal provisions, including a 2.0 times additional bonds test for the senior lien, as well as the structural requirement for pledged revenues to be transferred from the state to the trustee.
The rating "further reflects the absence of a debt service reserve requirement for the bonds, a modest credit weakness, though this is mitigated by the commission's strong liquidity position," Moody's said.
The stable outlook "incorporates the expectation of continued sound debt service coverage supported by the breadth and diversity of the San Diego County economy, the strong long-term trend of revenue growth and modest borrowing capital plans," Moody's said.
Significant and sustained increase in debt service coverage and/or sizable growth in sales tax revenue could lead to an upgrade; and if the opposite were to occur, a significant and sustained decline in debt service coverage or sustained contraction in sales tax revenue, a downgrade could result, the ratings agency said.
The senior lien bonds are secured by a gross pledge of a 0.5% sales tax levied throughout San Diego County, net of an administrative fee paid to the California Department of Tax and Fee Administration.
