Strong Coverage Cushion: Fitch expects MADS coverage would remain strong throughout a moderate economic downturn, even if pledged revenues were leveraged to the additional bonds test
which requires 1.5x coverage of MADS on all senior and subordinate obligations.
"The rating reflects our view of the project area's predominantly residential status and location in a mature southern San Diego County city near the US-Mexico border, strong debt service coverage, relatively strong additional bonds test
, and taxpayer diversity," said Standard & Poor's credit analyst Paul Dyson.
To some extent, achievement of a desired TIF bond rating can be structured in by creating the level of debt service coverage necessary to overcome a specific TIF district's risks, and by placing restrictions in the form of an additional bonds test
on the amount of future debt that might dilute coverage below a certain level.
The most important of these are the rate covenant, the additional bonds test
, and the debt service reserve requirement.
Legal covenants are adequate, with an additional bonds test
of 1.5x, and a rate covenant of 1.25x.
Key rating strengths include the county's good local economy, with quick access to Phoenix and Tucson, pledged excise tax revenues making up a small 12% of general fund revenues, strong projected maximum annual debt service coverage and adequate additional bonds test
, said Alda Mostofi, credit analyst with S&P.
The rating assumes the district continues its practice of issuing to a prospective additional bonds test
The high debt service coverage and sound additional bonds test
are the major factors contributing to the upgrade, said the agency's analyst Robert Hannay.
Property Tax Collection Rates: The CIT dedicated tax bond rating is sensitive to declines in property tax collection rates of a scale that would materially erode the protection inherent in the expected coverage ratios, given the fixed-dollar levy, 1.1x additional bonds test
and moderate historical delinquency experience.
The rating factors in the project area's high volatility ratio, 1.35x additional bonds test
, and healthy technology-centred area economy, said credit analyst Ian Carroll.
There is an annual rate covenant of sufficiency (1.0x) and an additional bonds test
of 1.2x pro-forma maximum annual debt service, based on an average of the last two fiscal years' operating results.
The upgrade reflects the agency's strong maximum annual debt service coverage and strong 1.7x additional bonds test
, said Standard & Poor's credit analyst Misty Newland.