OREANDA-NEWS. Fitch Ratings has affirmed the following tax allocation bonds (TABs) at 'BBB+' for the Rialto Redevelopment Agency, California:

--\$16.2 million TABs (Merged Project Area) series 2005C;
--\$19.7 million TABs (Merged Project Area) series 2008C;
--\$23.7 million TABs (Merged Project Area) series 2005A;
--\$36.6 million TABs (Merged Project Area) series 2008A;
--\$8.7 million tax allocation housing set-aside bonds (Merged Project Area) series 2005B;
--\$25.9million tax allocation housing set-aside bonds (Merged Project Area) series 2008B.

The Rating Outlook is Stable.

SECURITY

The non-housing tax allocation bonds are payable from a first lien on non-housing Rialto merged project area gross tax increment revenues (less senior pass-throughs and county administrative fees), and a subordinate lien on former housing set-aside revenues.

The tax allocation housing bonds are payable from the Rialto merged project area's housing set-aside revenues.

KEY RATING DRIVERS

GROWING PROJECT AREA AV: The project area's large and heavily developed commercial and industrial tax base has posted solid gains in recent years, exceeding pre-recession levels. Fitch believes that current development activity will foster continued AV growth.

CONCENTRATED TAX BASE: Taxpayer concentration is high and has grown in recent years, centering on corporate distribution facilities in the city's expanding industrial park.

SOUND AV CUSHIONS: Non-housing and housing TABs are characterized by sound AV cushions (defined by the percentage of one-time AV decline that the tax base is able to withstand while maintaining 1x MADS coverage) of 39% and 33%, respectively.

BELOW-AVERAGE ECONOMIC CHARACTERISTICS: City per capita income levels are well below average and the unemployment rate is well above state and national averages.

SATISFACTORY AB1X26 IMPLEMENTATION: The rating incorporates the expectation that the agency will continue its satisfactory implementation of AB1x26 (dissolution legislation) procedures.

RATING SENSITIVITIES

FUTURE AV GROWTH: Continued gains in AV resulting in meaningfully higher debt service coverage and AV cushion could prompt positive rating action.

CREDIT PROFILE

The city of Rialto (2013 population 101,910) is located 60 miles east of Los Angeles in San Bernardino County. The Rialto merged project area, formed in 1977 and amended in 2002, encompasses a large area of over 7,500 acres and over 50% of the city and has a significant industrial presence. The project area is about 15 miles from the Ontario International Airport, and has excellent access to the Interstate-10 freeway and the Alameda Corridor rail line that links it to the Ports of Los Angeles and Long Beach. As a result the city and the project area have large distribution and warehousing concerns. The project area comprises 41% industrial, 19% residential, 14% commercial, 9% vacant, and 17% unsecured properties.

SOUND COVERAGE AND AV CUSHION

Current MADS coverage on the non-housing TABs improved to 2.27x in fiscal 2015 from 2.05x in fiscal 2014, and the AV cushion for the non-housing TABs increased modestly to 1.76x from 1.62x over the same period. The current AV cushion on the housing TABs remains sound at 33%. By comparison, the peak to trough AV decline was 8.1%.

Tax increment revenues are sufficient to sustain other moderate stresses. MADS coverage for both housing and non-housing bonds stays above 1x under various stress scenarios, including the loss of all outstanding appeals, and a repeat of AV declines experienced in the past recession.

LARGE, CONCENTRATED PROJECT AREA

The project area is very large (7,500 acres) and includes several large distribution centers including Target Corp., FedEx Corp., Staples Inc. and Toys R Us Inc. The project area's tax base continued to grow in fiscal 2015, with total AV increasing 6.7% to \$3 billion, beating its pre-recessionary peak. Unsecured AV remains elevated at 14% of total due to the large warehousing presence. The solid IV to base year ratio of 380% results in a low volatility of IV to changes in AV.

The top 10 taxpayers constitute a high 42% of the project area's total IV in fiscal year 2015 led by Target Corp. at 12.8% and Prologis, Inc. The recent closure of Enertech, a former top taxpayer, was offset by the project area's continued AV growth and a temporary site use agreement for the facility.

AV growth is expected to remain steady with the ongoing construction of several major development projects. Current outstanding appeals have continued to decline through fiscal 2015, with only 1.8% of IV at risk, and the success rate of tax appeals remains low.

BELOW AVERAGE ECONOMIC INDICATORS

Per capita income for the city of Rialto is very low at about 57% of the state average, and home values are beginning to recover according to Zillow, though residential property constitutes a modest 19% of AV. The city's March 2015 unemployment rate of 9.6% has improved considerable from 13.5% the year prior, but remains above average for the state (6.5%), and the nation (5.6%).