Fitch Affirms Riverside County Transportation Commission's, (CA) Obligations at 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following obligations of the Riverside County Transportation Commission (RCTC) at 'AA':

-- $462.2 million sales tax revenue bonds (limited tax bonds) 2013 series A;

-- $37.6 million sales tax revenue bonds (limited tax bonds) 2010 series A;

-- $112.37 million sales tax revenue bonds (limited tax bonds) 2010 series B (taxable build America bonds);

-- $139.1 million sales tax revenue bonds (limited tax bonds) 2009 series A, B and C (variable rate);

-- Sales tax revenue bank bonds, 2009 series A, B and C.

The Rating Outlook has been revised to Stable from Positive.

SECURITY

The bonds are payable from an irrevocable first lien pledge of the countywide 2009 Measure A, 1/2 cent sales tax revenues, net of state administrative costs, and swap revenues.

KEY RATING DRIVERS

The 'AA' sales tax revenue bond rating reflects the fundamentally strong local economy, solid growth prospects, satisfactory limitations on additional leverage, and high maximum annual debt service coverage. The revision of the Outlook to Stable from Positive reflects the application of Fitch's revised criteria for U.S. state and local government credits, which were released April 18, 2016. The revised criteria provide for greater consideration of the historical volatility of RCTC's revenues.

Solid Growth Prospects: Fitch views growth prospects for pledged revenues as solid due to consistent population and employment growth in Riverside County, mixed income ratios and improving unemployment rates. The regional economy's growth is driven by the relatively lower cost of living relative to coastal areas and abundant developable land.

Resilient Revenue Stream: Pledged sales tax revenues are moderately resilient to both cyclical declines and the return of historic volatility. Unaudited fiscal 2016 revenues cover maximum annual debt service (MADS) for projected existing and planned debt by 2.9 x.

Satisfactory Leverage Limitations: A long-standing RCTC policy of limiting leverage to 2.0x MADS is an important limitation to leverage, in addition to an additional bonds test (ABT) of 1.5x MADS.

No IDR: RCTC does not have material exposure to operation risk. As such, Fitch has not assigned an Issuer Default Rating (IDR).

RATING SENSITIVITIES

REDUCED COVERAGE: Sharp and sustained declines in pledged revenues or leveraging of pledged revenues beyond RCTC's policy limitation could lead to a negative rating action.

CREDIT PROFILE

RCTC allocates funding for public transit systems and oversees the construction and improvement of roads, highways, and other transit projects. RCTC does not own or operate a public transit system.

SALES TAX REVENUE GROWTH PROSPECTS

The sales tax revenue bonds are payable from the half-cent retail transactions and use tax (sales tax) authorized by the voter-approved Measure A ordinance and levied throughout Riverside County (the county), net of the state's Board of Equalization (BOE) administrative fee. The tax base is broad and diverse and Fitch views growth prospects for Riverside County as solid due to consistent population and employment growth.

The BOE distributes the sales tax revenues on a monthly basis according to a predetermined formula with quarterly true-ups. Residual sales tax revenues following debt service payments are released to the RCTC for other purposes, including distributions to local jurisdictions, investments in capital projects, and administrative costs.

SECURITY STRUCTURE RESILIENT THROUGH DOWNTURNS

Legal provisions provide satisfactory protections for bondholders. They include an additional bonds test (ABT) of 1.5 x MADS for bonds outstanding plus bonds to be issued. In addition, bondholders benefit from a longstanding RCTC policy limiting leverage to 2.0x MADS as well as a maximum $975 million in outstanding debt, in which limitation, as amended in November 2010, was included in the authorizing ordinance. In the current investment rate environment, RCTC's 2.0x MADS policy is more limiting than the $975 million debt limitation at any given time. RCTC expects to issue about $117 million - over one-half of the currently remaining bond capacity under the ordinance - in fiscal 2018.

Fitch evaluates the revenue stream's sensitivity to economic downturns by considering both the estimated reduction in sales tax revenues under a 1% contraction in national GDP and the largest consecutive decline in actual sales tax revenues over the past 15 years. Current DSC is quite resilient with an estimated cushion of 9x, the Fitch estimated 6.6% revenue loss in a moderate economic contraction scenario, and 2.4x, the greatest consecutive historical decline, which amounted to approximately 27% from 2007-2011.

Given RCTC's additional debt plans, Fitch focused its resilience analysis on RCTC's policy to maintain DSC at 2.0x. Pledged revenue's resilience from 2.0x DSC is more mixed with a cushion of 7.6x, the estimated negative 1% GDP decline scenario of 6.6%. From 2.0x DSC, pledged revenues could withstand a decline of almost 2.0x, the greatest historical decline in revenues. Given the outsized impact of the housing market collapse on the Riverside County economy, the rating incorporates Fitch's expectation that such a drastic decline in pledged revenues would not reoccur in future economic downturns.

Estimated MADS assumes interest on the aggregate $139.1 million series 2009 series A, B and C variable rate bonds at the fixed rate specified in the respective swap agreements. Fitch views the credit risk of RCTC's relatively large amount of variable rate debt, amounting to approximately 18.5% of total outstanding par, as manageable. Fitch believes RCTC has adequately mitigated the risk to bondholders of an unexpected termination of the outstanding swap agreements (negative mark-to-market value of $24 million as of May 2, 2016) with the diversity and credit quality of the two swap providers (Deutsche Bank AG, rated 'A-'. Stable Outlook and Bank of America, N.A.. rated 'A+' Stable Outlook), the subordination of any potential termination payments, RCTC's market access and RCTC's substantial liquidity position with $519 million in readily available funds at the end of fiscal 2015.

RCTC does not have material operations. Therefore, Fitch does not believe the assignment of an IDR is relevant to its analysis.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.

Applicable Criteria

U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879478

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009508

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009508

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160726006578/en/

Fitch Ratings
Primary Analyst
Karen Ribble
Senior Director
+1-415-732-5611
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Shannon Groff
Director
+1-415-732-5628
or
Committee Chairperson
Michael Rinaldi
Senior Director
+1-212-908-0833
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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