Amend: Fitch Rates Rialto Redev Agency (California) $99MM TABs 'BBB+'; Upgrades $85MM to 'BBB+'.

SAN FRANCISCO -- This is a correction for a message issued on Jan. 17, 2008. This text replaces the earlier version.

Fitch rates the following bonds being sold by the Rialto Redevelopment Agency, Calif. 'BBB+':

--$44,970,000 Tax Allocation Bonds (TAB)(Merged Project Area) 2008 series A (Tax-Exempt);

--$22,690,000 Tax Allocation Housing Set-Aside Bonds (Merged Project Area) 2008 series B (Taxable);

--$31,555,000 Tax Allocation Bonds (Merged Project Area) 2008 series C (Taxable).

In addition, Fitch upgrades $72.2 million in outstanding parity bonds to the 2008 series A and C bonds and $11 million in outstanding parity bonds to the 2008 series B bonds to 'BBB+' from 'BBB'. The Outlook for all bonds is Stable. The new issues are expected to sell competitively on Feb. 28.

The upgrade reflects the merged project area's strong growth and increased debt service coverage despite the substantial increase in leverage represented by the 2008 bonds. The rating also considers the area's strategic location and land available for additional development, balanced by taxpayer concentration and very slow debt amortization.

The merged project area is large and encompasses 54% of the City of Rialto. The city is located in San Bernardino County, about 15 miles from Ontario International Airport and 60 miles east of Los Angeles. The area is dominated by sizable distribution centers, taking advantage of large land tracts, good highway and road access and the Alameda Corridor rail line that links to the Ports of Los Angeles and Long Beach. The project area still has about 1,650 acres left for development, although about one-quarter of this space is considered habitat for an endangered species, creating some uncertainty regarding the ability to build and additional costs. Residential property makes up 24% of total project area assessed value (AV), somewhat limiting concerns over the area's high mortgage delinquency and foreclosure rates.

The project area's incremental value (IV) has risen substantially, averaging 24% per year from fiscals 2001-2008. The increment now is more than four times that of the base year. Despite the growth, the tax base remains concentrated in the largest 10 taxpayers, who represent 27% of AV and 36% of IV. These large taxpayers include distribution centers for Target Corp. and Staples Office Superstore, as well as the owners of leased distribution and industrial facilities. Taxpayer appeals have been moderate, with the average reduction granted varying by original project area, and averaging 11% on a weighted basis.

Debt service coverage is sound with the 20% of tax increment revenue pledged to the housing set-aside tax allocation bonds (housing bonds) covering maximum annual debt service (MADS) 1.45 times (x) and the remaining 80% net of certain senior tax sharing and other payments covering MADS on the tax allocation bonds (TABs) 1.69x. Fitch notes the agency's effort to retain good coverage levels despite more than doubling their debt outstanding. Future issuance is protected by a 1.25x additional bonds test, and the agency indicates that new issues will be linked to development and incremental value gains.

Coverage levels hold up well to three Fitch-designed stress tests, including loss of the three largest taxpayers, which brings MADS coverage levels down to a still acceptable 1.14x and 1.33x, respectively. Coverage is maintained at 1x for the housing set-aside bonds with a 22% decline in AV and with a 29% loss for the TABs.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.