California Statewide Communities Dev. Auth. -- Moody's upgrades California Statewide Communities Development Authority, CA's 2007 A-2 POBs to Ba2 from Caa2, outlook is stable

Rating Action: Moody's upgrades California Statewide Communities Development Authority, CA's 2007 A-2 POBs to Ba2 from Caa2, outlook is stableGlobal Credit Research - 23 Feb 2021New York, February 23, 2021 -- Moody's Investors Service has upgraded the California Statewide Communities Development Authority, CA's Taxable Pension Obligation Bonds, 2007 Series A-2 Bonds (Capital Appreciation Bonds) to Ba2 from Caa2 and revised the outlook for the 2007 Series A-2 bonds to stable from positive. This rating action affects $10.7 million of debt outstanding for this series.RATINGS RATIONALEThe upgrade to Ba2 from Caa2 of the California Statewide Communities Development Authority, CA's Taxable Pension Obligation Bonds, 2007 Series A-2 Bonds (Capital Appreciation Bonds) reflects a significant improvement in the credit quality of the largest pool participant, the Town of Paradise. The town received a $270 million payment from Pacific Gas & Electric Company (PG&E, B1 stable) as a settlement for its role in causing the November 2018 Camp Fire that almost completely destroyed the town. The town's full payment of two years of debt service following the Camp Fire, despite the resulting financial devastation, are a governance consideration driving the current rating action. While the town is still in the process of developing a plan for use of the settlement payment, the infusion of cash significantly improves its ability pay debt service while maintaining operations and investing in capital needs. Given the infusion of cash and demonstrated commitment to meeting debt service, the city is very well positioned to make its next service payment on June 1, 2022.The Ba2 rating is constrained to one notch above the credit quality of the weakest pool participant because it is an unenhanced pool that lacks a step-up provision or debt service reserve and the weakest participant is equal to over 25% of the pool. The pool participants' remaining share of debt service are as follows: the City of Palm Springs (27.5%), the Town of Paradise (39.0%) and the City of Port Hueneme (33.5%). Paradise share of the pool is declining but remains material until fiscal 2028. Thereafter, Paradise's share will decline rapidly through fiscal 2031 when Port Hueneme will become the sole pool participant.RATING OUTLOOKThe stable outlook on the authority's Taxable Pension Obligation Bonds, 2007 Series A-2 Bonds reflects our view that the settlement payment from PG&E will stabilize Paradise's financial position, which remains had been weakened by the loss of nearly all ongoing revenue sources.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING- Adoption of long-term financial plan by the Town of Paradise that provides path for ongoing financing of city operations, capital investments and debt service- Economic recovery and rebuilding of Paradise- Improvement in the weighted average credit quality of pool participantsFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING- Rapid depletion of Paradise's reserves that does provide pathway ongoing payment of debt service- Decline in the credit quality of the two currently stronger pool participantsLEGAL SECURITYPayments by the participating municipalities to the authority for their share of debt service are their unconditional obligations, payable from any legally available funds. There is no cross collateralization or cross default. Therefore, no municipality is responsible for the bond repayments of any other municipality, and default of one municipality will not constitute default of any other municipality. Additionally, the authority's general funds are not pledged for payment of the bonds. There is no debt service reserve fund.Under the terms of separate trust indentures, the participating municipalities make debt service payments to the trustee, Wells Fargo Bank, N.A. (Aa1). The terms in the agreements are similar except for the debt service schedules. Payments sufficient to pay the municipality's proportionate share of principal and interest on the bonds are due to the trustee on August 1 each year. For capital appreciation bonds, payment of principal and accreted interest is due to bondholders in the following June.Once the funds are received by the trustee, they are deposited into a bond fund, where there are held until they are transferred for payment to bondholders. If any funds remain after full debt service has been paid, those funds will be returned to the appropriate municipality by the trustee. Failure to pay principal and/or interest by August 1 constitutes a default under the trust agreement. If a default occurs, the municipality is given a 60-day period by the trustee to cure the default.PROFILEThe California Statewide Communities Development Authority's Pension Obligation Bond Program provides an opportunity for local governments in California (Aa2 stable) to finance their unfunded pension liabilities. Each of the local governments issued pension obligation bonds, which were sold to the authority to finance all or a portion of their unfunded pension liability.Pool participants in the 2007 Series A-2 Bonds include the City of Palm Springs, the Town of Paradise and the City of Port Hueneme.METHODOLOGYThe principal methodology used in this rating was Public Sector Pool Programs and Financings Methodology published in April 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1171420. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. 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