Fitch Affirms Vanderburgh County Redevelopment District, Indiana's 'BBB+' TIF Revs

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 at 'BBB+';

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

The Rating Outlook is Stable.

SECURITY

The bonds are secured by tax increment revenues generated within the Burkhardt Road economic development area (the area). 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 well under Fitch-designed scenarios that stress collections. No additional leveraging is expected.

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

RESILIENT YET CONCENTRATED TAX BASE: The concentrated tax base appears to have recovered after modest 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 and a neutralization process protects AV that has been captured for the district.

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

RATING SENSITIVITIES

COLLECTION VARIANCES: This rating is sensitive to the volatility inherent in the pledged revenue stream. A multi-year trend of noticeably increased coverage or a measurable diversification of the tax base could result in Fitch upgrading the rating. Likewise, declines in AV and pledged revenues, while not expected, could result in downward rating pressure.

CREDIT PROFILE

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

SATSIFACTORY DEBT SERVICE COVERAGE

Debt service coverage, inclusive of the parity series 2008, was 1.8 times (x) in fiscal 2013. This is consistent with the range of 1.6x - 1.8x since the issuance of the 2008 bonds. Debt service coverage stands up well to Fitch-designed stress tests that assume additional AV reductions. AV would need to decline about 44% from 2013 levels for coverage to fall to 1.0x. The district does not currently plan to issue additional debt backed by the tax increment pledge.

Year end 2014 coverage cannot be conclusively discerned at the current time, as the theoretically calculated maximum collectible revenue has not yet been adjusted based on the final AV determination. Current year estimates of the maximum revenue that could be collected would result in a flat or modest increase. The county reports that the majority of appeals have been concluded at this time, suggesting AV stability.

Additionally, each year the state reviews county AV as part of a required AV neutralization process. The process takes into account successful appeals and can apportion the total reduced AV between the base year and the incremental AV in order to protect the AV captured for the district. Fitch anticipates that ultimately debt service coverage will remain within the historical range.

STABLE, CONCENTRATED PROJECT AREA ADJACENT TO OTHER RETAIL

The 4,650-acre project area represents 6% of the county's tax base. Preliminary 2014 results indicate that project area AV has grown by 11.6% over the past year, following a 14.3% decline, the only substantial deterioration since the recession.

Incremental AV also performed well, with a recent 7.4% rebound after three years of decline, which averaged about 6% annually. 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 highly concentrated. The largest taxpayer constitutes 8.6% of total AV and the 10 largest taxpayers represent a significant 41.5% 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.

AVAILABLE LIQUIDITY

Solid reserve levels provide the district flexibility to fund future capital needs and, while not pledged, is available to service debt. The district estimates that the fiscal 2013 audit will show cash and reserves increasing to $23.2 million, which Fitch believes is likely, given historical trends. The district plans to use some of its reserves in the intermediate term to continue funding a large capital project to widen roads, which could increase access to the district. Fitch positively notes that to date, the county has been able to increase reserves while funding this improvement.

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 November 2013 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'.

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=822108

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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
Karen Ribble
Senior Director
+1-415-732-5611
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@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
Karen Ribble
Senior Director
+1-415-732-5611
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com