BEVERLY HILLS, Calif. — The Southern California Logistics Airport Authority's subordinate tax allocation revenue bonds, though remaining at speculative grade, enjoyed a Moody's Investors Service upgrade to B3 from Caa2.
Monday's upgrade affects $58 million of SCLAA's airport project TABs Series 2007 and 2008A.
Moody's has also affirmed the Ba1 rating on $37 million of Series 2007 housing set-aside tax allocation bonds.
SCLAA, the issuer of the bonds, is a joint exercise of powers authority that is comprised of the City of Victorville and the Victorville Water District. VVEDA delegated all of its redevelopment authority with respect to the airport to SCLAA.
"The upgrade to B3 primarily reflects our change in calculation for recovery (97%) given that the state reversed its prior decision set in May 2015 of denying VVEDA's requested allocation of tax increment revenues for curing past defaults or replenishing the debt service reserves," Moody's analysts wrote. "Given this revision, the forecasted loss to investors for the Series 2007 and 2008A subordinate bonds will be lower than our previous estimate during our last rating review in July 2015."
The upgrade also incorporates VVEDA's large tax base and continued moderate growth.
Moody's said its ratings represent expected loss, encompassing both default probability and bondholders' likely post-default recovery. When a security is in default, then placement of the rating will largely depend on the expected recovery to bondholders. Ratings of defaulted bonds with expected recoveries of 95% to 99% will typically be in the B range.
The B3 rating represents an expected recovery of 95% to 97%, analysts said.
The affirmation of the Ba1 on the Series 2007 bonds housing set aside reflects adequate coverage levels and a track record of timely debt service payment that Moody's anticipates will continue.
The Series 2007 housing TABs are legally secured by the 20% housing set aside of tax increment receipts.