Fitch Affirms Park Creek Metro District, CO's Senior Limited Tax Bonds at 'BBB'; Outlook Stable

AUSTIN, Texas--()--Fitch Ratings has affirmed its 'BBB' rating on the following Park Creek Metropolitan District, Colorado, bonds:

--$188.98 million senior limited property tax supported revenue bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are special obligations of the district, payable from a senior lien on certain payments received pursuant to an interlocal agreement and derived from the levy of a limited ad valorem tax within the Westerly Creek Metropolitan District (WCMD).

KEY RATING DRIVERS

ADEQUATE DEBT SERVICE COVERAGE: Senior debt service coverage is forecast to be thin but sufficient at 1.28 times (x) in fiscal 2014 and is expected to improve over time with the development of the tax base.

WEAK DEBT PROFILE: Debt ratios are very high with the inclusion of subordinate obligations (not rated by Fitch) and amortization is slow, a profile characteristic of a single-purpose development district.

PROPERTY TAX AT MAXIMUM RATE: Future revenue is dependent upon new construction and property valuation trends.

STRATEGIC LOCATION: The Stapleton service area is located between downtown Denver and the Denver International Airport. The district's diverse development includes sizeable retail and industrial sectors as well as growing residential investments.

ADVANCED URBAN DEVELOPMENT: The service area has attained an advanced level of development and only a moderate amount of infrastructure costs remain for the near to medium term.

PROMISING GROWTH PROSPECTS: Stapleton represents Denver's only remaining large tract of developable land that includes a residential component. Residential units under construction have increased considerably in recent years.

RATING SENSITIVITIES

SLOW TAX BASE DEVELOPMENT; REAPPRAISAL LOSSES: The assessed values (AV) forecast by the district for fiscal 2015 and 2016, based largely on completed development and construction underway, are important to rating stability given already diminished coverage levels.

CREDIT PROFILE

The district was created for the purpose of assisting in the financing and construction of infrastructure improvements serving the former Stapleton International Airport in Denver. WCMD was created simultaneously to provide property tax and other revenue to the district, pursuant to an interlocal agreement, in exchange for the completion of infrastructure improvements by the district.

LARGE AND DIVERSE DENVER AREA DEVELOPMENT

The service area of the district and WCMD is ideally located in close proximity to downtown Denver, major transportation corridors, and the Denver International Airport. The development plan creates a mixed-use community that at full build-out is projected to include 12,000 housing units, 13 million square feet of commercial and retail space, and 1,100 acres of open space and parks on about 4,000 total acres.

Development on the first 2,048 of 2,935 projected developable acres is now in its fifth phase, with 63% of the planned 9,871 residential units completed. A regional shopping center and other retail are also in place, with industrial space built and occupied as well. Office construction in the district has lagged other sectors.

Housing offerings in Stapleton are varied, with home prices ranging from $175,000 to $800,000. Management reports that all homes built in 2013 have been sold, and an average price of $439,000 reflects the generally affluent nature of residents.

AV is concentrated but trending down favorably, with the top 10 taxpayers representing 27% of total 2014 values, down from 30% in 2012. These taxpayers represent a mix of commercial and industrial properties.

ADVANCED STAGE OF INFRASTRUCTURE INVESTMENT

Over $500 million in infrastructure has been put in place to date, comprising the bulk of such needs for full development. Funding sources include district borrowing, tax increment financing (TIF) bonds issued by the Denver Urban Renewal Authority (rated 'A-' by Fitch), and excess TIF revenues.

No new money debt is anticipated, but the district's practice of refunding outstanding subordinate lien debt with senior lien bonds may limit prospects for coverage growth over the long term. The district's additional bonds test for senior bonds requires that 1.25x coverage be met using historical AV for the past two years, which Fitch views as adequate.

ASSESSED VALUE GAINS IMPROVE COVERAGE

The AV of WCMD, the taxing district, increased at a compound annual growth rate (CAGR) of 4.6% from 2008-2014, with only one decline (8.2%) due to reappraisal loss in 2012. Growth was stronger at 8.5% in 2013 and exceeded district projections at 11.3% in 2014, reflecting new construction and reappraisal gains.

The decline in AV for 2012 decreased senior bond coverage to 1.20x from 1.46x the prior year. However, the rebound in AV increased coverage to 1.28x for 2014. Maximum annual debt service (MADS) coverage using fiscal 2014 pledged revenue is adequate at 1.27x.

TAX BASE GROWTH PROJECTIONS SUPPORTED BY DEVELOPMENT ACTIVITY

The district projects strong tax base growth of 11% in 2015 from new construction underway, increasing MADS coverage to 1.41x. Management's 2016 projection of 13.9% AV growth includes reappraisal gains and increases coverage to 1.60x for MADS.

Although Fitch views these projections as somewhat optimistic, residential construction within the district's service area has accelerated significantly in recent years. Construction reached a low of 190 homes built in 2009, improving by 240% to 647 homes in 2012 and 677 in 2013.

FITCH STRESS ANALYSIS

Fitch's stress tests show senior lien coverage remaining thin but above 1.0x assuming sharply reduced AV and development activity. Fitch also notes that under such stress scenarios, the district's subordinate lien debt would rely on developer advances for repayment.

In the event of default on any subordinate bonds, there is no acceleration of senior debt or other adverse effects to senior bondholders.

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=823512

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Shane Sellstrom, +1-512-215-3727
Analyst
Fitch Ratings, Inc.
111 Congress Ave, Suite 2010
Austin, TX 78701
or
Secondary Analyst
Jose Acosta, +1-512-215-3726
Senior Director
or
Committee Chairperson
Douglas Offerman, +1-212-908-0889
Senior Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings, Inc.
Primary Analyst
Shane Sellstrom, +1-512-215-3727
Analyst
Fitch Ratings, Inc.
111 Congress Ave, Suite 2010
Austin, TX 78701
or
Secondary Analyst
Jose Acosta, +1-512-215-3726
Senior Director
or
Committee Chairperson
Douglas Offerman, +1-212-908-0889
Senior Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com