Fitch Affirms Cordillera Metro District's (CO) GOs at 'BBB+'; Outlook Stable

AUSTIN, Texas--()--Fitch Ratings has taken the following rating action on Cordillera Metropolitan District, Colorado's general obligation (GO) bonds:

--$5.58 million unlimited tax bonds, series 2003 and 2006A affirmed at 'BBB+'.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the consolidated Cordillera Metro District (the district), secured by a pledge of unlimited ad valorem taxes on all taxable property within the district.

KEY RATING DRIVERS

RESTORATION OF CONTRACTUAL PAYMENTS: Contributions from the Cordillera Property Owners Association (CPOA), which provides the district with significant operating and financial support, declined as a result of litigation but returned to prior levels in fiscal 2013. The long-term trend for these revenues and district property taxes is dependent upon the success of the Club at Cordillera (a golf and recreational facility) and the overall desirability of the community.

DECLINES IN ASSESSED VALUATION: The district's tax base, which consists primarily of high-end second homes located within the Greater Vail Valley, declined over the past five years, erasing gains posted during the housing bubble. Officials estimate flat reappraisals in the next cycle (2016), given modestly positive sales trends.

STABLE FINANCIAL OPERATIONS: District financial operations are limited but satisfactory, characterized by nominally small but adequate reserves and liquidity. The district's operating mill rate is competitive with neighboring communities, and may be adjusted to generate a revenue neutral levy.

MANAGEABLE DEBT PROFILE: Debt ratios are manageable, no additional debt is expected, and existing obligations are repaid very rapidly.

RATING SENSITIVITIES

STABLE FINANCIAL PERFORMANCE: The rating is sensitive to shifts in fundamental credit characteristics including assessed valuation (AV) risks. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

The district is an affluent residential golf community located in the Greater Vail Valley 20 miles from the Vail/Eagle County regional airport. Formed in 1993, Cordillera experienced relatively rapid development during the 1990s and 2000s as wealthy second-home buyers were attracted by the district's high-quality amenities and proximity to the Vail and Beaver Creek resorts. The district is very small and comprises mostly second-home owners. There are 900 pad sites, of which 558 or 62% are currently built out. Recent development activity has been slow.

GOLF CLUB BUILDING MEMBERSHIP; DISTRICT CPOA FUNDING RESTORED

The Club at Cordillera is the community's primary amenity and selling point, and consists of three signature golf courses, a tennis center and fitness facility, and one outdoor pool. Following the settlement of litigation over financial troubles and membership contracts, the club was sold to new owners in December 2012 who appointed Troon Golf as manager. The new owner and operator have begun rebuilding the membership and have reopened the club's facilities.

The litigation placed at risk the CPOA's ability to provide the district with funding support. Contributions for district operations and debt service are non-binding, and CPOA can modify the transfer agreement with district board approval. Payments dropped from 20% of the district's annual general government revenues (general and debt service funds) in fiscal 2011 to 13% in 2012, evidence of the operational pressures at the CPOA caused by legal and other fees associated with ongoing litigation at the club.

Following settlement of the litigation, CPOA funding in fiscal 2013 doubled to $806,186, comparable with prior funding levels. The fiscal 2014 budget projects combined contributions of $1.4 million for operations and debt service.

SHARP DECLINE IN ASSESSED VALUES

The district has experienced a precipitous drop in area home values, as reflected in 33% and 16% declines in the district's 2012 and 2014 tax base, respectively (property is revalued biennially). The valuation losses wiped out all of the district's AV gains since 2007. Additionally, six homeowners in the Timber Springs area petitioned for exclusion from the district's operating tax base in 2014. The Timber Springs exclusion accounted for a modest part of the 2014 AV decline, and Fitch does not believe this is an indication of potential future exclusions. Fitch takes some comfort in the requirement of excluded property owners to pay the district's debt service tax.

Revenue risk related to continued tax base declines is somewhat offset by a 2003 voter-approved measure that allows the district to adjust its operating tax levy to generate a similar level of property tax revenues as the year before, plus 5.5% if needed. Officials estimate flat reappraisals in the next reassessment cycle (2016), which Fitch views as reasonable given modestly positive trends in home sales. The number of home sales increased by 75% from 2012 to 2013, although according to Zillow, recent home price increases have been modest. The district reports its average home price is $1.5 million.

HISTORICALLY STABLE FINANCIAL PROFILE

District financial operations are limited, with an annual general fund budget of approximately $4 million (operating expenditures plus transfers out). The fiscal 2012 unrestricted general fund balance was equal to $1.2 million or a sound 30% of spending, with liquidity sufficient to cover about six months of general fund operating costs. Unaudited results for fiscal 2013 indicate a modest addition to fund balance.

Approximately 70% of general fund revenues are derived from property taxes. Unusually high property tax appeals created a small budget shortfall in 2011, but there was no interruption in payment. Property tax revenues for fiscals 2012 and 2013 were on budget and similar to prior years. An additional 27% of general fund revenue is received from district service charges, mostly composed of payments to the district from the CPOA for administrative services.

Due to the large decline in AV affecting operations in 2014, management increased the district's property tax millage for operations and debt service, sufficient to pay debt service and raise operating revenues by 5%, or approximately $153,000 (assuming a 97% collection rate). The total net increase in operating revenue for fiscal 2013 allowed for the full reinstatement of a previously reduced workforce, primarily in public safety services for manned gatehouses and code enforcement.

The fiscal 2014 general fund budget also reflects the increased CPOA funding ($194,000), flat general operating expenditures, and a $100,000 increase in paygo capital projects to fund capital program expenditures that have been deferred for the past several years. Fitch expects the district to maintain its financial position in 2014 and remain heavily reliant on property taxes.

MANAGEABLE DEBT BURDEN AND NO PENSION OR OPEB LIABILITY

Debt levels are moderately low, both on a per capita basis and when compared with the district's extensive tax base, as indicated by overall debt-to-full value of 2.9%. Debt service costs are extremely high at 49% of total government spending, although not unusual for limited-purpose entities.

Amortization is very rapid with 100% of principal retired within 10 years. District voters in 2010 approved a $15 million bond authorization to be used solely as a last resort to purchase the assets of the club. The district has no plans to issue any additional debt.

The district has no long-term liabilities related to its retired employees, as the district participates in a defined contribution pension plan and does not provide retiree health care benefits.

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=826637

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Contacts

Fitch Ratings
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com
or
Primary Analyst
Shane Sellstrom, +1-512-215-3727
Analyst
Fitch Ratings, Inc.
111 Congress Avenue, Suite 2010
Austin, TX 78701
or
Secondary Analyst
Jose Acosta, +1-512-215-3726
Senior Director
or
Committee Chairperson
Amy Laskey, +1-512-215-1568
Managing Director

Sharing

Contacts

Fitch Ratings
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com
or
Primary Analyst
Shane Sellstrom, +1-512-215-3727
Analyst
Fitch Ratings, Inc.
111 Congress Avenue, Suite 2010
Austin, TX 78701
or
Secondary Analyst
Jose Acosta, +1-512-215-3726
Senior Director
or
Committee Chairperson
Amy Laskey, +1-512-215-1568
Managing Director