Excise Tax

The credit factors FGIC evaluates include the size, diversity and strength of the tax base, as well as positive historical pledged revenue and coverage trends. We also review the standard legal provisions including a solid additional bonds test, a reserve fund and appropriate use of variable rate debt and derivatives.

General Obligation Bonds

General obligation bonds carry the broadest pledge of issuer support. With a pledge of its full faith and credit, the issuer is obligated to use any and all available resources to repay the debt. Specific credit characteristics FGIC analyzes during the underwriting review include financial operations, debt levels, and the economic and tax base. The issuer must have a proven track record to meet all its obligations, including the timely payment of debt service and prudent fiscal management.

General Obligation Limited Tax

General obligation limited tax obligations are characterized by a pledge to pay debt service from all available resources within a predetermined tax cap. Specific credit characteristics FGIC analyzes during the underwriting review include financial operations, debt levels, and the economic and tax base. The issuer must have a proven track record to meet all its obligations, including the timely payment of debt service and prudent fiscal management.

Hospitality (Food & Beverage)

Bond proceeds from hospitality transactions are generally used to fund convention center projects and renewal projects. Pledged revenues are generated from hotel/motel taxes and/or food and beverage taxes. FGIC's credit analysis focuses on the pledged revenue stream, debt service and bond covenants. Since the pledged revenue stream tends to be more limited, legal covenants take on greater importance, and a higher additional bonds test may be required. We review historical trends regarding the number of hotel/motel rooms, occupancy rates, room rents, prospects for further hotel construction, and pledged revenue performance, which would include consumption trends. We also analyze whether travel to a destination is for business or discretionary purposes, and consider seasonal impacts and the effect of any historical weather-related events on pledged revenues.

Hotel/Motel Tax

FGIC's review of municipal bonds backed by dedicated hotel/motel tax revenues encompasses key legal and structural aspects of the transaction, including the statutory authority and duration of the tax, the presence of a reserve fund to mitigate volatility in collections and the strength of the additional bonds test which limits over-leveraging of tax revenues. Our analytical review focuses on historical revenue collections, coverage of proposed maximum debt service and hotel payer concentration. Evaluation of market trends including the number of available hotel rooms, occupancy and room rates, local attractions, economic development efforts and the surrounding transportation network help determine the vitality of the hotel/motel tax revenue stream.

Sales Tax

FGIC's credit analysis of sales tax revenue bonds evaluates the pledged sales taxes, the amount of debt service that will be supported by the pledged revenues and bond covenants that place restrictions on additional bond issuance. When evaluating the pledged revenues, FGIC reviews the economic base and major sales tax producers. We also analyze how broadly the sales tax is applied, and any exemptions. We focus on the degree of concentration, changes in the largest sales tax generators and determine how resilient the base is in times of economic downturn. We also analyze revenue trends, including seasonal variations and nearby competition.

Special Assessment

FGIC's underwriting review process includes evaluation of the composition of the tax base, including special tax or special assessment collection rates and property delinquency rates. We also evaluate value-to-lien ratios and accelerated foreclosure requirements. Underdeveloped areas are outside FGIC's underwriting parameters.

The credit characteristics of California Mello-Roos transactions that FGIC analyzes include debt service coverage, tax base composition, special tax collection rates, value-to-lien ratios and cash flow projections. We will also consider Marks-Roos structures.

Tax Allocation Bonds

FGIC's credit analysis of a California tax allocation bond includes the size and diversity of the tax base, tax base volatility, total and incremental assessed valuation, growth trends, historical and pro-forma debt service coverage, and the general redevelopment agency plan limitations associated with the redevelopment area.

Tax Increment Financings

When reviewing tax increment financings, FGIC analyzes coverage of debt service, the physical size and boundaries of the project area, the absolute dollar size of the increment, the level of taxpayer concentration within the increment, the method under which the increment would be revalued, the means by which taxes are collected, potential changes in the tax rate and potential tax appeals. The legal structure is also central to our analysis. Our focus includes the contemplated additional bonds test and the expected level of debt service reserve funding.