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Fitch Rates Los Angeles, CA 2013 TRANs ‘F1+’; Affirms Outstanding GO Bonds

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Fitch Rates Los Angeles, CA 2013 TRANs ‘F1+’; Affirms Outstanding GO Bonds

SAN FRANCISCO–(BUSINESS WIRE)–
Fitch Ratings has assigned an ‘F1+’ rating to the following:
–$1.325 billion Los Angeles (city), California 2013 tax and revenue anticipation notes (TRANs, or notes), series A-C.
The notes will be sold via negotiation on June 26, 2013. They are not subject to redemption prior to final maturity.
In addition, Fitch affirms the following rating:
–$1.1 billion in outstanding Los Angeles general obligation (GO) bonds at ‘AA-‘.
The Rating Outlook is Stable.
SECURITY
The notes are secured by a first lien and charge against unrestricted general fund revenues attributable to fiscal 2014. To the extent that these moneys are insufficient to repay the notes in full at their maturity, the notes will be paid from any other legally available unrestricted moneys.
The GO bonds are secured by ad valorem property taxes levied without limitation on rate or amount upon taxable properties within the city.
KEY RATING DRIVERS
CITY’S INHERENT ECONOMIC IMPORTANCE: The city is the commercial and cultural center of a very large, diverse economy that is starting to benefit from revenue and property market improvements, despite an unemployment rate which remains stubbornly high.
DECREASING STRUCTURAL IMBALANCE: The city’s four-year financial projections indicate decreasing structural imbalance but some of the underlying assumptions rely on further labor concessions which might be difficult to achieve.
CHALLENGING POLITICAL ENVIRONMENT: The city’s challenging political and labor relations environment can hinder its ability to respond swiftly to budgetary pressures. Improvements in some revenue streams and slightly improved reserve levels could reduce labor’s willingness to make further concessions.
AFFORDABLE DEBT: Fitch expects the city’s debt ratios to remain affordable but notes the increasing pension and OPEB costs resulting from past investment losses.
STRONG SHORT-TERM DEBT COVERAGE: Fitch’s highest short-term rating of ‘F1+’ on the notes reflects the sound repayment structure and good coverage of note repayment set-asides when sizable liquid borrowable funds are considered, which largely offset any risk of cash flow variances.
RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics including the city’s strong financial management practices and ongoing focus on diminishing its general fund structural imbalance. The Stable Outlook reflects Fitch’s expectation that such shifts are unlikely.
CREDIT PROFILE
Los Angeles is an important economy and by virtue of its size and diversity is well positioned to benefit from the current national economic recovery. Substantial recessionary pressures caused sharp tax revenue declines in the recent past. However, the city is now experiencing revenue and property base growth which is expected to continue into fiscal 2014 and beyond. Following two years of slight declines, taxable assessed valuation (TAV) increased by 1.3% in fiscal 2012 and 2.5% in fiscal 2013. The rebounding local residential, commercial, and industrial property markets are expected to augment future TAV growth.
The unemployment rate remains stubbornly high at 11% in March 2013, an improvement over the year prior (12.4%) and the July 2010 peak of 14.7%.

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