Fitch Affirms Monarch-Chesterfield Levee Dist, MO's Bonds at 'A'; Outlook Stable

NEW YORK--()--Fitch Ratings takes the following rating action on the Monarch-Chesterfield Levee District, Missouri (the district) bonds, as part of its continuous surveillance effort:

--$4.3 million levee district improvement bonds, 1999 affirmed at 'A';
--$4.5 million levee district improvement bonds, 2003 affirmed at 'A';
--$7.2 million levee district improvement bonds, 2006A affirmed at 'A';
--$3.5 million levee district improvement bonds, 2009 affirmed at 'A';
--$2 million levee district improvement bonds, 2006B affirmed at 'A-'.

The Rating Outlook is Stable.

SECURITY

The bonds are special limited obligations payable solely from a special levee tax (SLT) levied against certain benefitted property. The amount of the SLT is proportionate to the benefits conferred upon each parcel and constitutes a lien on property to which only the lien of the state for general state, county, school and road taxes are paramount. The bonds are also secured by series-specific, cash-funded debt service reserves equal to the IRS standard.

KEY RATING DRIVERS

HIGH CONCENTRATION LEVELS: Taxpayer concentration is high for all of the bonds, with a particularly high concentration level for the series 2006B bonds. This higher concentration results in a rating one notch lower than on the other series.

HEALTHY RESERVES: The district continues to maintain healthy reserves, particularly given a recent large influx of cash from a land sale, and operating expenditures are nominal.

STRUCTURE CREATES POTENTIAL VOLATILITY: The process to adjust assessments to account for missed payments could take time. The bonds have sum-sufficient coverage with no cushion for non-payment. This risk is somewhat offset by the sizable reserves.

RAPID AMORTIZATION: Principal amortization is rapid with 85% repaid within 10 years.

RATING SENSITIVITIES

REDUCTION OF RESERVES: A significant reduction in cash reserves would limit the district's financial flexibility and ability to withstand potential tax payment interruptions.

CREDIT PROFILE

The district, which encompasses a 7.4 square mile area located 20 miles west of St. Louis, was incorporated in 1947 to protect and reclaim land from wash and bank erosion and water overflow. The district's economy is driven primarily by commercial and retail interests and agriculture, but is part of an affluent suburban region.

SLT IMPOSED BASED ON PROPORTIONATE BENEFIT
The district is required to impose the SLT in an amount sufficient to pay debt service on the bonds, and if at any time the SLT revenues are insufficient, the district is required to increase the tax as may be necessary to pay debt service. The levy on any one taxpayer cannot exceed the proportionate benefit conferred upon its parcel. SLTs are collected by the county and unpaid taxes result in a parity lien with property taxes placed upon the delinquent parcel of land.

Levee taxes not paid by Dec. 31 of the year in which they are levied become delinquent and bear a penalty of 1% per month on the amount of such unpaid taxes until paid. Liens for delinquent levee taxes will be enforced by legal suit. Upon enforcement of a successful suit, the lien will be foreclosed in an effort to recover the delinquent taxes. Tax payments are received several months before debt service payment dates, but timely collection of delinquent assessments is not assured. This would be especially concerning if one of the larger taxpayers failed to make a payment, given the concentration. In the interim, the delinquent taxpayer's tax shortfall would need to be plugged with excess funds on hand or the debt service reserve.

Additional bondholder protection is derived from an emergency clause which allows the district to levy the SLT at a rate 10% above the debt service requirement tax rate without violating the 'proportionate benefit' section pursuant to the Act. The district has not used this additional levying capacity to date.

DISTRICT MAINTAINS AMPLE RESERVES
At the close of fiscal 2012 (June 30 fiscal year) the district maintained excess funds available (but not pledged) for debt service of $3.5 million in addition to the $11.6 million in various debt service reserve funds. Additionally, in July 2012, the district sold a parcel of land for $14.5 million. It has subsequently used $2.9 million of these funds to call outstanding bonds, reducing only mildly the growth in debt service over the next several years but leaving over $11 million of additional funds that can be used to pay debt service. The district's ongoing operations are limited; the bulk of total expenditures consist of debt service.

Amortization is very rapid, with 85% of bonds repaid within 10 years. There are limited legal restrictions regarding the issuance of additional bonds, but the district does not anticipate issuing additional bonds in the near future. The recent calling of bonds reduced debt service requirements through 2019, including lowering maximum annual debt service by $1.2 million. Debt service still increases to $8.1 million in 2020 from $3.8 million in 2014.

NOTABLY HIGH CONCENTRATION LEVELS
The largest SLT payer accounts for 9.7% of the total special assessment levy on the series 1999, 2003, 2006A and 2009 bonds, and the top 10 accounting for 30%. The top taxpayer for the series 2006B bonds accounts for 16.5% of the total special assessment and the top 10 75%. Fitch derives some comfort from St. Louis County (rated 'AAA', Stable Outlook) being the largest taxpayer for the 2006B bonds and second largest for the other bonds.

Furthermore, there is a limited number of taxpayers, especially for the series 2006B bonds. The tax is levied on 772 benefited properties associated with the series 1999, 2003, 2006A and 2009 bonds and only 108 benefited properties are in the sub-district associated with the series 2006B bonds. The continued development of available land should dilute existing taxpayer concentration somewhat, particularly as two large outlet malls are scheduled to open in the district in August 2013, one of which is in the series 2006B sub-district.

Additional information is available at www.fitchratings.com.

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, and IHS Global Insight.

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

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=796930
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Contacts

Fitch Ratings
Primary Analyst:
Eric Friedman, +1-212-908-9181
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Sheena Gordon, +1-212-908-9115
Associate Director
or
Committee Chairperson:
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Eric Friedman, +1-212-908-9181
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Sheena Gordon, +1-212-908-9115
Associate Director
or
Committee Chairperson:
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com