2008-11-13 17:59:01 -
Fitch Ratings assigns an 'AA-' rating to the Anaheim Public Financing Authority (the authority) of Orange County, CA's $52.9 million lease revenue refunding bonds, series 2008. The Rating Outlook is Stable.
The bonds are expected to sell via negotiation during the week of Nov. 17, 2008. The bonds are secured by Anaheim's (the city) lease rental payments to
the authority for the use of various essential police, fire and recreation facilities. The city covenants to budget and appropriate lease rental payments from all legally available city funds during each year of the lease. The bonds have a final maturity date of Aug. 1, 2020.
The 'AA-' rating reflects the city's solid general fund balance coupled with other available reserve funds. In addition to an unreserved general fund balance of $37 million, there are significant funds available in an emergency from fully funded internal service funds. The series 2008 bonds will eliminate the city's general fund exposure to variable rate debt and interest rate swaps. Reflecting the city's policy preference for pay-as-you-go capital improvement funding, per capita debt levels are low to moderate and the city is making a concerted effort to fund fully its post-employment health benefits liability.
Ongoing financial rigor will be necessary as the city faces a significant property market downturn and softening property and hotel tax revenues. While the city's experienced management team is proactively implementing budget measures to respond to weakening fiscal 2009 revenues, the city still anticipates drawing down at least $3.4 million of its general fund balance at fiscal 2009 year-end.
The total unreserved general fund balance in fiscal 2007 was a strong $44.79 million or 15.2% of spending. Fiscal 2008 results are expected to lower to $37.3 million, in part due to the city's year-end transfer of $62 million to an irrevocable CalPERS trust to prefund the city's post-employment health benefits obligation. However, fiscal 2009 results are expected to be lower again due to softening taxation revenues, most notably from hotel occupancy taxes. In the first quarter of fiscal 2009, hotel occupancy tax revenues have performed 9% below the approved budget and 1% below the first quarter of fiscal 2008. The city is now budgeting at a more conservative 5% below actual fiscal 2008 hotel occupancy tax receipts. While the city's economic base continues to expand and diversify, its property tax revenues are softening as the local median house price drops back nearly to the 2004 level, the foreclosure rate increases, and a significant number of permitted developments delay construction. Nevertheless, significant capital investments continue to be made in the city, most notably by the Walt Disney Company (the city's largest taxpayer at 12% of taxable assessed valuation), resort area hotels, and Kaiser Permanente (which is constructing a new hospital). In response to softening revenues, city management is implementing a number of personnel and operations cost-reduction initiatives to ensure that it does not have to draw down more than $3.4 million to $5 million of its reserves.
Bondholder protections are standard and include a reserve fund and insurance requirements. Rental interruption insurance addresses the risk of rental payment abatement in the event of substantial interference with the city's use and occupancy of the leased facilities.
Debt levels are low to moderate. Net direct debt is $1,908 per capita, or 2.1% of taxable assessed valuation. Overall net debt is $3,427 per capital, or 3.9% of taxable assessed valuation. Principal debt amortization is below average at 41% in 10 years.
Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bonds ratings which, if adopted, may result in an upward revision of this long-term rating (see Fitch research "Exposure Draft: Reassessment of the Municipal Ratings Framework"). Fitch has deferred its final determination on municipal recalibration due to market conditions and plans to revisit the recalibration in the first quarter of 2009 (see press release 'Fitch Defers Final Determination on US Municipal Ratings Recalibration,' dated Oct. 7, 2008).
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public web site,
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Fitch Ratings
Alan Gibson, +1-415-732-7577 (San Francisco)
Scott Monroe, +1-415-732-5618 (San Francisco)
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)
mailto:cindy.stoller@fitchratings.com
