2008-11-10 04:17:01 -

- Fitch Ratings has upgraded the rating on the Vista, California Community Development Commission (the commission) tax allocation bonds to 'A-' from 'BBB+'. This action applies to the $27.1 million outstanding series 1995, 1998 and 2001 bonds that Fitch presently rates. The Rating Outlook is Stable.

The bonds are special obligations of the commission, payable from property taxes allocated

with respect to the project area, less required set asides and payments to other governmental agencies based on pass-through agreements. The commission was established in 1986 with the purpose of improving the commercial environment, generating employment opportunities, upgrading residential neighborhoods, and strengthening the tax base.

The upgrade to 'A-' reflects a healthy growth rate in project area incremental assessed value (AV) and subsequent gains in increment property tax revenues. As a result, annual debt service coverage exceeds original projections. Other positive credit factors include the relative maturity and advantageous location of the project area and the potential for future development. An offsetting credit factor is the ongoing housing slump. While residential AV represents a small portion of the project area, parts of southern California have experienced some of the worst residential mortgage-related problems (ie. foreclosures and vacancies) and a slowdown in commercial development is likely. Bond covenants include a weak 1.15 times (x) additional bonds test; however, the district's debt limit will keep coverage well-above that requirement.

Vista is located in northern San Diego County, approximately 40 miles north of San Diego. The current estimated population is roughly 90,000. The project area includes the downtown and central business district areas of the city, as well as a major business park. City officials report that the project area is mature, with roughly 85% of the acreage developed. Few large tracts reportedly remain for development, with the majority of future construction activity expected to be in-fill. Local officials cite the recent opening of two rail stations in the project area (which ultimately connect to the MetroLink system) as locations that have the greatest potential for future commercial and high-density residential development. Tax sharing agreements with overlapping entities currently divert roughly 25% of annual gross tax increments revenues from the commission. A 20% housing set aside also is deducted from gross revenues, as are several other smaller set-asides.

Growth in AV has been healthy in recent years, averaging nearly 12% annual increases since fiscal 2004. The fiscal 2009 AV totals $1.84 billion, up 8.8% from the prior year. Slower rates of growth likely will continue at least for the near term, given the current economic environment. Top taxpayer concentration is manageable at about 15% for fiscal 2008. Current debt service coverage levels are sizeable and afford a significant cushion. Annual debt service coverage for fiscal 2008 was nearly 2.6x, which is higher than earlier projections had estimated. Maximum annual debt service (MADS) coverage also is healthy at 2.4x. Stress tests indicate that MADS coverage would remain healthy (in excess of 1.7x) even if AV were to decline by 30% from current levels.

Commission debt totals $53.5 million and includes $26.4 million of tax allocation bonds sold in 2005 that Fitch did not rate. The commission also has several financial commitments resulting from developer agreements; payments under these commitments totaled $665,000 in fiscal 2007. In addition, the commission has roughly $13.6 million in loans outstanding to the City of Vista's general fund. While no specific plans exist for additional near term borrowings, commission officials note the need for the additional infrastructure improvements and the likelihood of additional debt at some point.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings
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