[May 20, 2014]

Fitch Affirms RNR School Fin Auth CFD No. 92-1, CA's Special Tax Bonds at 'AA-'; Outlook Stable

Fitch Ratings has affirmed the following RNR School Financing Authority (the authority) Community Facilities District (CFD) No. 92-1 special tax bonds:

--$44.5 million special tax bonds, series 2004A, 2006A, and 2010A at 'AA-';

--$21 million subordinate special tax refunding bonds, series 2012A at 'A+'.

The Rating Outlook is Stable.

SECURITY

The special tax bonds, series 2004A, 2006A, and 2010A are secured by a senior lien on special tax revenues, net of administrative expenses. The debt service reserve requirements are met through a combination of surety bonds (series 2004A and 2006A) and a cash-funded reserve (series 2010).

The subordinate special tax refunding bonds, series 2012A are secured by the net special tax revenues on a subordinate basis to the senior special tax bonds. The debt service reserve requirement is met through a surety bond.

KEY RATING DRIVERS

SATISFACTORY DEBT SERVICE COVERAGE: The ratings reflect sound debt service coverage (DSC) on senior and subordinate bonds and satisfactory performance under various stress scenarios. The rating further reflects Fitch's expectation that management will generally keep future subordinate issuance in line with new revenue generating development (the senior lien is closed) and not leverage revenues to the 1.10x additional bonds test (ABT).

TESTED, STABLE REVENUE SOURCE: The special tax is assessed at a fixed dollar amount per parcel and therefore does not fluctuate with changing valuations on existing properties within the CFD. Special tax delinquencies peaked at 4.7% during the recession but have since dropped and delinquent properties are subject to accelerated foreclosure proceedings.

NON-CONCENTRATED TAX BASE: The tax base is largely residential and the top 20 taxpayers comprise a low 1.6% of the fiscal 2014 special tax levy. The total effective tax rate in the area is somewhat high but remains affordable given its above-average socioeconomic characteristics.

REBOUNDING ECONOMY: The regional economy centers on agribusiness, government, and petroleum-related industry. Both the economy and the property market are displaying positive trends and the local unemployment rate compares favorably to the state's.

RATING SENSITIVITIES

The rating is primarily sensitive to material shifts in DSC. Risks to DSC include future leverage, taxpayer delinquencies, and/or taxpayer prepayments. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The authority was formed in 1992 by three school districts located in Kern County at the southern end of California's San Joaquin Valley. The authority provides local funds for the acquisition and construction of school sites and facilities. The participating school districts are Rosedale Union School District, Norris School District, and Rio Bravo-Greeley Union School District.

The CFD encompasses approximately 18 square miles in and around north-western Bakersfield. The CFD benefits from its limited exposure to operational risks since it serves primarily as a funding conduit for school district capital projects whose scope can be adjusted for varying economic, demographic, and financial conditions.

SECURITY STRUCTURE

The bonds are secured by either a closed senior lien (series 2004A, 2006A, and 2010A) or a subordinate lien (series 2012A) on special taxes, net of administrative expenses, imposed on properties according to the CFD's voter-approved special tax rate and method formula. The annual special tax escalates 2% annually with no sunset provisions. The special taxes are collected with property taxes and have the same lien priority as ad valorem property taxes. The authority has covenanted to pursue accelerated foreclosure proceedings if individual parcels are delinquent by $2,000 or more, or if special tax delinquencies exceed 5% of the special taxes levied.

SATISFACTORY DEBT SERVICE COVERAGE

The CFD issued $8.4 million in subordinate special tax bonds, series 2014A (not rated by Fitch). Consequently, all-in DSC levels have lowered slightly since Fitch's last review but remain satisfactory and continue to withstand various Fitch stress tests. In fiscal 2015, Fitch estimates that DSC, net of administrative fees and delinquency rates based on recent averages, will provide coverage on senior bond debt service at 2.4x and combined senior and subordinate debt service at 1.3x. All-in MADS coverage is roughly 1.2x.

Annual debt service in most years through fiscal 2036 ascends at roughly the same rate as the annual 2% levy increase, thereby preserving coverage levels without considering additional debt issuance. As a fixed charge, revenues do not fluctuate with valuations on existing properties but would expand if/when new property is added to the tax roll.

Principal payout on all bonds is slow at 36% in 10 years and features ascending debt service. With remaining debt authorization of $271 million, Fitch notes the slow maturity schedule could constrain future capital financing flexibility. However, the district is considering the issuance of approximately $20 million in subordinate special tax revenue bonds in fiscal 2017 for construction of a new elementary school to meet growing student enrollment. The current rating level incorporates Fitch's expectation that management will generally keep future issuance in line with new development and not leverage revenues to the subordinate bonds' 1.10x annual debt service ABT.

Net special tax revenues in excess of debt service are used by member school districts to fund pay-go capital projects and additional administrative expenses.

REBOUNDING ECONOMY

The regional economy centers on agribusiness, government, and petroleum-related industries. Bakersfield's wealth levels are somewhat below average when compared to the state's. The city's December 2013 unemployment rate of 7.4% compares favorably to the state's rate of 7.9% but is somewhat higher than the nation's rate of 6.5%. The city's relative resilience is likely due to the high rate of governmental jobs in the area with Bakersfield serving as the county seat.

The total effective tax rate in the area, including the special tax assessment, is somewhat elevated but remains affordable with the median effective tax rate for a single-family home at approximately 1.62%. The tax base is largely residential and non-concentrated with the top 20 taxpayers comprising only 1.6% of the fiscal 2014 special tax levy.

Special tax delinquencies were 1.05% in fiscal 2013 compared to a recent high of 4.68% in fiscal 2008. New development within the CFD slowed significantly during the recession. Development activity is now rebounding with 440 development permits issued in the 12 months ending February 28, 2014, up from 320 during the comparable period a year prior. There is still considerable development potential with more than 10,000 acres of undeveloped property within the CFD.

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

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS (News - Alert) Global Insight, and National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=830984

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 (News - Alert) 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.

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