Fitch Affirms Westminster CO's Sales Tax & Special Purpose Revs; Outlook Stable

AUSTIN, Texas--()--Fitch Ratings has affirmed the following ratings for Westminster, Colorado's (the city) outstanding revenue bonds:

--$20.1 million sales and use tax bonds, series 2001, 2007A, 2007C, and 2010 at 'AA+';

--$25.3 million special purpose parks, open space and trails (POST) sales and use tax bonds, series 2007B and 2007D at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The sales and use tax bonds are payable from a first lien on the 3% sales and use tax levied within the city. The POST sales and use tax bonds are payable from a first lien on the 0.25% POST sales and use tax levied within the city.

KEY RATING DRIVERS

MATURE AND ROBUST ECONOMY: The city's economy is sound and diverse, centrally located between Denver and Boulder, CO. The city's aggressive redevelopment efforts are fueling the expansion of its commercial and retail sectors despite being near build-out.

HEALTHY COVERAGE LEVELS: Both sales and use tax-supported securities exhibit solid debt service coverage by pledged revenues which have shown consistent growth in the last four years. The lower rating on the POST sales and use tax bonds reflects lower coverage and a weaker coverage requirement for issuance of additional bonds. The city has no further plans to leverage either sales tax security.

REVENUE CONCENTRATION: Sales and use tax revenues comprise the largest revenue source for the city's operations. Fairly stable financial results and adequate reserves mitigate risk associated with the potential volatility of these revenue streams.

MODERATE DEBT RAPIDLY AMORTIZED The debt profile of the city is characterized by a very rapid principal pay out rate and a moderate overall debt burden.

IMPROVED FINANCIAL POSITION: The city implemented a prudent contingency plan following the recession. Reserves increased in both fiscal years 2012 and 2013, reflecting greater financial stability.

RATING SENSITIVITY

DETERIORATION OF FINANCIAL POSITION: Fitch's analysis of special tax bonds considers the issuer's overall creditworthiness; as such the revenue bond ratings are sensitive to shifts in the city's fundamental credit characteristics, including its overall financial position.

NARROWED DEBT SERVICE COVERAGE: The ratings are further sensitive to changes in sales tax collections and debt service coverage.

CREDIT PROFILE

Westminster is located between Denver and Boulder. The city has a population of approximately 109,600, up 8.6% since 2000.

MATURE DENVER-METRO COMMUNITY NEARING BUILD-OUT

The city is relatively wealthy and exhibits moderate population growth. Median household income is 121% of the U.S. average. The unemployment rate has improved in the past year to 6.2% as of March 2014, down from 7% in 2013 and still below state and national rates.

In addition to participating in the broad Denver metropolitan economy the city's own economic base is fairly diverse. However, like other Denver-area municipalities, the declining housing reassessments have halted taxable value growth and caused modest declines in recent years. The city is approaching full development with most remaining available property classified as commercial.

SALES TAXES FUND MAJORITY OF CITY OPERATIONS

The city's largest revenue source is sales and use tax receipts, accounting for 57% of total general fund revenues in 2013. Receipts since 2010 have improved due to significant new retail development in the city, reversing negative trends in previous years and relieving pressure on city operations. Collections in 2013 of $60 million provided a large 12.3 times (x) coverage of maximum annual debt service (MADS) for the sales and use tax bonds. Coverage remained adequate at 1.8x MADS for the city's POST sales and use tax bonds. Year to date collections show continued growth of 5.1% for sales and use taxes and 4.3% for POST sales and use taxes from January through March (the variation in year-to-date performance reflects a distinction in the collection of taxes in urban renewal areas).

Some taxpayer concentration exists with the top 10 sales tax payers representing about 29% of total collections, although no one source represents more than 5.2%. The city has several economic development efforts planned or underway, which should benefit collections, reduce taxpayer concentration, and eventually offset declines in tax revenues from store closures at Westminster Mall.

As part of its redevelopment efforts at the aging Westminster Mall the city's economic development authority in May 2011 purchased the mall property and surrounding parking which has consolidated ownership and will facilitate the eventual transition to a large scale missed use development. Issues with a previous developer delayed the project somewhat, but a redevelopment agreement is expected by the end of 2014. As with all sales tax-secured bonds, there is vulnerability to economic cycles and competing retail opportunities.

MIXED DEBT PROFILE

Overall debt ratios are moderate. This includes obligations payable from the city's tax increment districts which carry the city's moral obligation. No further leveraging of the 3% sales and use tax or the 0.25% POST sales tax is planned. The city's capital plan calls for modest pay-as-you-go financing from excess sales and use taxes.

The sales tax bonds carry a strong additional bonds test (ABT) of 2.0x MADS coverage by historical revenues, and the ABT for POST bonds is reasonable at 1.5x MADS. The indenture also provides for a springing debt service reserve fund if coverage dips below 2.0x MADS, to be funded over 12 months, for the sales tax bonds. Principal pay out of total city debt obligations is rapid with 71% retired in 10 years.

STABLE FINANCIAL OPERATIONS WITH HEALTHY RESERVES

The city's financial operations are well maintained. Despite the decline in sales and use taxes in 2009, the city has retained strong reserves, implementing an effective contingency plan to stabilize its financial position. The 2013 near-final unrestricted general fund balance totaled $25 million, or 20% of spending, above its 15% fund balance policy level. This policy amount is comprised of a 10% general reserve fund and a 5-10% general fund stabilization reserve. Fitch considers the maintenance of solid reserves as a key credit factor in light of the city's dependence on a potentially volatile revenue stream.

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, Zillow.com, 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

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Contacts

Fitch Ratings
Primary Analyst
Shane Sellstrom
Analyst
+1-512-215-3727
Fitch Ratings, Inc.
111 Congress Avenue Suite 2010
Austin, TX 78701
or
Secondary Analyst
Jose Acosta
Senior Director
+1-512-215-3726
or
Committee Chairperson
Michael Rinaldi
Senior Director
+1-212-215-1833
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Shane Sellstrom
Analyst
+1-512-215-3727
Fitch Ratings, Inc.
111 Congress Avenue Suite 2010
Austin, TX 78701
or
Secondary Analyst
Jose Acosta
Senior Director
+1-512-215-3726
or
Committee Chairperson
Michael Rinaldi
Senior Director
+1-212-215-1833
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com