Rating agency questions airport’s ability to make debt payments
January 22, 2011 12:00 PM
Brooke Edwards

VICTORVILLE • Moody’s Investors Service has dropped the rating on $51 million in bonds for Southern California Logistics Airport, placing that debt plus another $40-million set on a watch list for possible further downgrades.

The decision was based largely on plummeting property tax values, according to a report from Moody’s. The corresponding drop in revenue has the New York-based rating agency questioning whether Victorville will be able to make its debt payments on the SCLA bonds this year, with some of the bonds now listed as posing a “substantial credit risk” to investors.

The drop to a Ba3 rating — on Moody’s scale of Aaa1 to C, with anything below a flat B nearing default status — can interfere with the city’s ability to seek new bonds or refinance existing debt.

Standard and Poor’s, the nation’s other top rating agency, suspended ratings for several Victorville bonds in 2009, citing the city’s precarious finances.

The SCLA bonds are secured entirely by tax increment brought in from every local city as property values increase in the 90,000-acre Victor Valley redevelopment authority, which includes most of Victorville, large chunks of Adelanto and Apple Valley, a portion of Hesperia and patches of unincorporated San Bernardino County.

Between 2009 and 2010, Moody’s report states, total assessed property values in the redevelopment project areas dropped by $1.7 billion or nearly 18 percent, while incremental assessed values dropped by more than 30 percent. As a result, the report states total debt service coverage on the bonds was reduced to just 1.07 times, or just enough to cover payments.

Victorville made an $11 million required debt service payment in December by pulling from reserve funds and placing that account $2 million in the hole, according to Deputy City Manager Doug Robertson. That fund is expected to be righted as tax allocations come in this month and later in the spring.

However, while definitive numbers for 2011 weren’t yet available, Moody’s analysts said they believe this year’s revenues won’t be enough to meet debt service payments on the bonds, let alone pay back any negative balances from prior years.

Moody’s did recognize the potential for revenues to rebound “in the medium to long term,” as property taxes creep back up and industrial development in the area surrounding SCLA continues.

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Brooke Edwards may be reached at (760) 955-5358 or at bedwards@VVDailyPress.com.