Fitch Affirms Vanderburgh County Redev Dist, Indiana's TIF Revs at 'BBB+; Outlook Stable

NEW YORK--()--Fitch Ratings affirms Vanderburgh County Redevelopment District, Indiana's (the district) outstanding tax increment revenue bonds (TIFs) as follows:

--$1.8 million tax increment revenue bonds (Burkhardt Road economic development area), series 2005;

--$25.8 million tax increment revenue bonds (Burkhardt Road economic development area), series 2006.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by tax increment revenues generated within the Burkhardt Road economic development area (the area) together with other available district funds. The bonds are also secured by a common cash-funded debt service reserve fund.

KEY RATING DRIVERS

SATISFACTORY DEBT SERVICE COVERAGE: Pledged revenues provide acceptable debt service coverage. These levels hold up sufficiently under Fitch-designed scenarios that stress assessed valuation. No additional leveraging is expected.

SMALL PROJECT AREA IN NOTABLE RETAIL ENVIRONMENT: The small project area includes well-known retailers, commercial and light industrial establishments, and multi-family residences. The area benefits from its location within a regional hub, although competitive retail locations are nearby.

RESILIENT YET CONCENTRATED TAX BASE: The tax base experienced only marginal declines during the economic downturn. The high increment value-to-base year value reflects the maturity of the project and moderates potential assessed value (AV) and revenue volatility. Concentration among the top taxpayers is very high.

RESERVES PROVIDE CUSHION: The district reports solid reserve levels. Although these funds are not pledged to bondholders, they can service debt or support future capital projects and provide cushion against future debt service coverage volatility.

ADEQUATE LEGAL PROVISIONS: The additional bonds test is somewhat weak and the debt service reserve fund is cash-funded.

RATING SENSITIVITIES

This rating is sensitive to the volatility inherent in the pledged revenue stream.

CREDIT PROFILE

The area is located in Vanderburgh County near the city of Evansville, in the southwestern corner of the state.

SATISFACTORY DEBT SERVICE COVERAGE

Debt service coverage, inclusive of the parity series 2008, has been consistent at 1.6x for the past two years. Debt service coverage stands up well to Fitch-designed stress tests that assume additional AV reductions. AV would need to decline about 37% from 2012 levels for coverage to fall below 1.0x. The district does not currently plan to issue additional debt backed by the tax increment pledge.

Year-end 2013 coverage cannot be discerned at the current time, as the theoretically calculated maximum collectible revenue has not yet been adjusted because of appeals, AV corrections and non-payment. Current year estimates of the maximum revenue that could be collected would result in a 36% year-over-year increase. Fitch suspects that mid-year adjustments will bring revenue changes somewhat in-line with that of the past three years, which ranged from a mild 0.1% decline to a moderate 3.7% increase.

A recent annexation had increased the tax rate of a substantial portion of the project area's taxpayers, although the increased revenue was not allocated to the district. The district reports that a large number of taxpayers remained below the 3% circuit breaker tax cap, minimizing the effects on collections.

STABLE, CONCENTRATED PROJECT AREA ADJACENT TO OTHER RETAIL

The 4,650 acre project area represents less than 7% of the county's tax base. Preliminary 2013 results indicate that project area AV has grown modestly over the past two years, at 0.9% and 3.8%, respectively, following a mild 1.1% decline. Incremental AV also performed well, with a recent 12.5% rebound after two years of decline, at 1.6% and 5%, respectively. The project area benefits from a high incremental value as a percent of base value, consistently over 300%, somewhat shielding the district from AV volatility.

The tax base is concentrated. The largest taxpayer constitutes 8.5% of total AV and the 10 largest taxpayers represent a significant 39% of AV. The district benefits from its diverse establishments, including retail, commercial and light industrial, and apartments, although this is somewhat offset by nearby competing retail centers.

FINANCIAL CUSHION AVAILABLE

Solid reserve levels provide the district flexibility to fund future capital needs and, while not pledged, is available to service debt. Fiscal 2011 general fund cash and investments totaled $18.2 million. The district estimates that the fiscal 2012 audit will show cash and reserves of $20.4 million, which Fitch believes is likely, given historical trends.

Approximately $4.5 million in cash outside the general fund provides added flexibility. The district does not plan on reducing reserves to any great degree in the intermediate term, although there is no formal reserve policy. Fitch believes that maintenance of a healthy reserve position increases the credit's ability to tolerate a small degree of reduced coverage within the current rating level.

ADEQUATE LEGAL PROVISIONS

The additional bonds test is somewhat weak at 1.4x maximum annual debt service (MADS). The debt service reserve fund is cash-funded, with a standard requirement equal to the least of MADS, 1.25x average annual debt service, or 10% of total bond proceeds.

STABLE SOCIOECONOMIC FACTORS

The district has benefitted from the city's role as a regional hub and the area's stable economy. County and regional unemployment in December 2012 is equivalent to that of the nation. The regional economy has above-average concentrations in professional services as well as in education and healthcare. Wealth levels are below national averages.

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, and the National Association of Realtors.

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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Contacts

Fitch Ratings
Primary Analyst
Barbara Ruth Rosenberg
Director
+1-212-908-0731
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Eric Friedman
Director
+1-212-908-9181
or
Committee Chairperson
Jessalynn Moro
Managing Director
+1-212-908-0608
or
Media Relations
Sandro Scenga
+1-212-908-0278
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Barbara Ruth Rosenberg
Director
+1-212-908-0731
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Eric Friedman
Director
+1-212-908-9181
or
Committee Chairperson
Jessalynn Moro
Managing Director
+1-212-908-0608
or
Media Relations
Sandro Scenga
+1-212-908-0278
sandro.scenga@fitchratings.com