Fitch Affirms Keppel Union School District (CA), CFD No. 91-1 at 'BBB+'; Outlook Stable.

SAN FRANCISCO -- In the course of routine surveillance, Fitch Ratings affirms the 'BBB+' rating on Keppel Union School District's $2.6 million of outstanding community facilities district (CFD) special tax bonds, series 1999A. The Rating Outlook is Stable.

The rating reflects stable and strong coverage levels, a very large cash-funded reserve fund, low capital needs, and rapid debt amortization. The rating also considers low taxpayer concentration levels, and an historically stable number of parcels. These strengths are balanced by a predominantly agricultural economy that exhibits historically high unemployment, lagging income levels, and the possibility that reserve funds could be used for other capital needs. Also, the local real estate market, which has high exposure to investor-owned properties and a substantial migrant workforce population, has shown signs of softening.

The security for the bonds is a minimum $90 annual parcel tax, whose lien on properties is on parity with ad valorem property taxes, on each of roughly 3,000 properties in the 17-square mile CFD. The district is located in the rural northeastern portion of unincorporated Los Angeles County and the local economy is substantially limited to agricultural activities. As in many agricultural communities, economic indicators lag the state and nation. Heightened levels of foreclosures and a major slowdown of new developments have contributed to a large 9.8% decline in assessed valuation in fiscal 2010.

Parcel tax collection rates historically have been volatile; however, fiscal 2008 and 2009 total collections came in above 100%. Debt service coverage is solid; Fitch estimates fiscal 2009 pledged revenue covers maximum annual debt service (MADS) 1.36 times (x). When interest earnings from the CFD's large cash reserve are included, MADS coverage rises to an estimated 1.64x, based on fiscal 2008 interest earnings. As of June 30, 2008, the CFD's cash reserve was $2.66 million, which would be sufficient to retire all outstanding bonds; however, management does not intend to do so. While the reserve could also be used to pay for capital projects, management noted that capital needs are minimal and that there is no plan to draw from the reserve in the near term.

The CFD has no additional debt, and overlapping debt of the school district is minimal. Direct debt for the CFD is equal to a low $149 per capita and amortization is rapid; 50% is retired in five years and 100% in 10 years.

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