Moody's Investors Service said it has upgraded to Baa3 from Ba1 the rating of the successor agency to the city of Santa Barbara Redevelopment Agency, Calif.'s Series 2001A, Series 2003A, and Series 2004A tax allocation bonds (TABs).

The bonds are secured by a pledge of tax increment revenues from the agency's redevelopment project area.

The upgrade to Baa3 reflects the project area's relative strengths compared to other Moody's-rated TABs, though there are weaknesses in a few areas outlined in the agency's February special comment.

The project area's coverage for the first payment period in calendar year 2013 falls below 2 times, though remains relatively strong at 1.78 times and first-payment coverage will likely remain at this level through maturity of the bonds in 2019, while coverage for the second period in calendar year 2013 is comfortably above the 2 times threshold.

The project area is slightly smaller than the standard threshold of 1,000 acres at 850 acres, though this weakness is offset by the tax base being the city's core downtown commercial and retail corridor which has shown healthy AV stability and growth.

Positive credit factors are the strong city resident wealth indicators and the size of tax increment AV to total AV at 94.0% in fiscal 2013. Taxpayer concentration is also notably diverse at 17% of incremental AV. Importantly, however, is the state legislature's willingness to modify the cash flows available for bond debt service as a considerable source of uncertainty and a major factor for not placing the rating in the A category.

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