Last year, Moody’s downgraded all redevelopment agency tax allocation bonds that were rated Baa3 or higher to a Ba1 rating, citing near term cash flow risks that would jeopardize debt service payments and ambiguities in the law caused by ABx1 26 and AB 1484.
Moody’s notes that ABx1 26 and AB 1484 greatly affected the legal frame work in which it calculates debt service coverage for tax allocation bonds, which impact how it rates these bonds. Moody’s further notes that the audit requirements in AB 1484 and its “sheer complexity” have resulted in unexpected payment delays but observes that ratings could go up if AB 1484 is implemented in a manner that clearly preserves timely debt service payment and enable compliance with bond documents.
In the next 90 days Moody’s will review the process by which it calculated debt service coverage during its downgrade in 2012 and take into account new information provided by successor agencies including the level of semi-annual cash flow coverage of debt service.
Ratings will be rescinded for bonds without adequate verified financial information. For bonds with adequate financial information, Moody’s will either confirm or revise the existing rating.