Fitch Rates Riverside County, California's $75MM 2009 Teeter Obligation Notes Series C 'F1+': Financial News

Fitch Rates Riverside County, California's $75MM 2009 Teeter Obligation Notes Series C 'F1+'
Tuesday December 1, 6:14 pm ET

SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings assigns a rating of 'F1+' to the County of Riverside, California's (the county) $75 million 2009 teeter obligation notes, series c.

The notes are scheduled to sell via negotiation on Dec. 9, 2009. Proceeds of the notes will refund at maturity (on Dec. 15, 2009) a portion of the county's outstanding 2008 series C notes.

The notes mature on Oct. 15, 2010 and are payable from legally available funds from the county's general fund; however, the district expects the notes to be repaid from proceeds of a future series of notes. The fiscal agent will notify the county 30 days in advance of the maturity of the series C notes.

The 'F1+' rating is based on the county's substantial liquidity available to the county if market conditions prevent reissuance. The county's assets include its general fund (Riverside County's implied general obligation rating is 'AA-' with a Negative Outlook), as well as a sizable investment pool that can purchase the notes as a permitted investment, and substantial borrowable resources outside the general fund which totalled $1.4 billion in June 2009. Fitch rates the Riverside County Treasurer's Pooled Investment Fund 'AAA' and its volatility rating is 'V1+'.

The county's 'AA-' implied general obligation bond rating and Negative Rating Outlook are based on its adequate financial position, which incorporates pressured operations due to a steep decline in revenues and a reduced financial cushion. Significant draws on reserves in fiscal 2008 and 2009 are projected to continue in fiscal 2010, bringing the unreserved fund balance from a healthy 15% in fiscal 2008 to a projected 5% in fiscal 2010. Fiscal 2010 represents the first year of a three-year fiscal rebalancing plan designed to reduce ongoing expenditures to match projected ongoing revenues by fiscal 2012. While Fitch acknowledges the county's cost-reduction efforts to date, the county's successful implementation of the plan is expected to be challenging in light of at least one more year of projected assessed value (AV) loss. Also, Fitch notes that some of this fiscal year's spending reductions were made through one-time measures such as employee furloughs.

Riverside County's housing market disruption has been severe, with AV declining 10.5% for fiscal 2010, largely the result of widespread reappraisals and home sales at reduced prices. The median home price has already declined 60% since 2006, and with foreclosure rates on non-agency loans at 20%, Fitch believes prices will continue to be pressured for the near term. In contrast, significant home construction and population gains resulted in tax base growth averaging a very high 15.5% per year from fiscal 2002 through fiscal 2008. The county expects some stability in the residential market and is focusing on evaluating commercial and industrial property values. Current county forecasts are for a 3.5% reduction in AV for fiscal 2011. Should the decline exceed the county's expectations, bringing the budget into structural balance will be much more difficult.

Led by a strong decline in construction activity, job growth trends have reversed; the county saw a loss of about 6% of its job base from September 2008 to September 2009. These losses combined with a stable labor force caused the unemployment rate to climb to a well above-average 14.7% from 9.6% over the same period. The largest job losses in the Riverside-San Bernardino metropolitan statistical area (MSA) were in construction (down 19% from October 2008 to October 2009), durable good manufacturing (down 11%), and retail trade (down 7%). At 6% of MSA employment in October 2009, construction employment is still modestly higher than the national average of 4.7%, but well below its peak in 2005 of one in 10 jobs in the MSA. Population growth continues but at a slower pace, growing 1% from 2008 to 2009.

Overall debt levels are moderate totalling about $3,810 per capita and about 3.8% of market value. The pension system is well-funded and the county's OPEB liability is manageable.

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

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