NEW YORK--()--Fitch Ratings has affirmed the following Greater Richmond Convention Center Authority, Virginia's (the authority) revenue bonds:
--$138 million outstanding hotel tax revenue bonds, series 2005, at 'A+'.
The Rating Outlook is Stable.
The bonds are limited obligations of the authority secured by the revenues derived from a multijurisdictional hotel tax agreement, subject to annual appropriation. A deed of trust on most of the regional convention center facility and funds held by the trustee under the indenture, which includes a cash-funded debt service reserve, provide additional security.
KEY RATING DRIVERS
HIGHLY RATED PARTICIPATING MUNICIPALITIES: The rating incorporates the reliance on the continued commitment of the four highly rated participating jurisdictions to appropriate hotel tax revenue under a nonbinding interlocal agreement with the authority.
STRONG COVERAGE: Debt service coverage is strong having recently improved after moderate declines in pledged revenues during the economic downturn.
CYCLICALITY OF PLEDGED REVENUES: The narrow hotel occupancy tax revenue stream, subject to annual appropriation by the participating jurisdictions, is subject to fluctuations based on changes in the economy and competition outside of the jurisdictions.
STRONG RICHMOND AREA ECONOMY: The area economy is strong and diverse resulting in growing hotel tax revenues and improved attendance at convention center events.
ADEQUATE BOND HOLDER PROTECTIONS: Legal provisions are adequate including a 1.5x additional bonds test and a cash funded debt service reserve.
CHANGE IN LEVELS OF PLEDGED REVENUES: Changes in debt service coverage as a result of fluctuations in pledged revenues could affect the rating.
FAILURE TO APPROPRIATE: If any of the participating jurisdictions failed to appropriate revenues, negative rating action could occur.
The authority is composed of the City of Richmond and the three surrounding counties of Chesterfield, Hanover, and Henrico (the participating jurisdictions).
HIGHLY RATED JURISDICTIONS WITH HISTORY OF ANNUAL APPROPRIATION
In accordance with a hotel tax payment agreement, the participating jurisdictions have expressed their intent to levy the hotel tax within their jurisdictions at the maximum allowable rate (8%) throughout the life of the bonds. Each jurisdiction has also agreed to appropriate and pay to the authority, on a monthly basis, the total amount collected from the hotel tax within their jurisdiction.
Fitch's general obligation bond ratings on the four participating jurisdictions are as follows:
--City of Richmond: 'AA+', Outlook Stable;
--Chesterfield County: 'AAA', Outlook Stable;
--Henrico County: 'AAA', Outlook Stable;
--Hanover County: 'AAA', Outlook Stable.
DEBT SERVICE COVERAGE IS STRONG
Pledged revenues have improved in fiscal 2012 and are up 11% from fiscal 2011. This follows an increase of 5% in fiscal 2011, preceded by moderate declines of 7% and 9% in fiscals 2010 and 2009 as a result of the economic downturn. Coverage of fiscal 2012 debt service (which also equates to maximum annual debt service - MADS) from hotel taxes is strong at 1.82x.
Year to date revenue collections for the first seven months of fiscal 2013 show signs of growth with revenues up 6% compared to the same period of fiscal 2012. Debt service for all parity debt is essentially level through fiscal 2019. Then it declines marginally in 2020 and remains stable through the final maturity in 2032.
LEGAL PROTECTIONS ARE ADEQUATE
Legal provisions allow for the issuance of additional bonds provided coverage is at least 1.5x MADS. Fitch notes the authority has no current plans to further leverage the security. The series-specific debt service reserve is cash funded at MADS.
STRONG AND DIVERSE ECONOMIC BASE
The area economy has remained relatively strong despite the recent recession. Economic growth is continuing with low unemployment rates and increasing income levels. The diverse economic base includes state and local government, health care, financial services, higher education, and retail trade, as well as high-technology and traditional manufacturing. Major employers include Virginia Commonwealth University (VCU), VCU Health System, Dominion Resources, DuPont, UPS, Capital One, Wells Fargo, Bank of America, SunTrust Bank and Kings Dominion Amusement Park.
Growth in the area hotel industry has stabilized in recent years with 142 hotels currently located within the participating jurisdictions. Data from Smith Travel Research, Inc. shows the average occupancy rate for the area increased in calendar year 2012 from the prior year, although it remains slightly below national norms. A new Courthouse Residence Inn, in downtown Richmond, is scheduled to begin construction next month, adding approximately 225-250 rooms. Richmond is the host city for the 2015 UCI World Road Cycling Championship, and the potential exists for additional new hotel development within the city to accommodate this nine day event.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors and Smith Travel Research, Inc.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria