Fitch Affirms Gravois Bluffs TDD, MO Transportation Sales Tax Bonds at 'BBB'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the following Gravois Bluffs Transportation Development District (Fenton, MO) bonds at 'BBB':

--$15.5 million transportation sales tax revenue bonds, series 2007.

The Rating Outlook is Stable.

SECURITY

The bonds are limited obligations of the district payable solely from the net revenues of a 1% tax on retail sales collected within the district.

The pledge of the sales tax is subject to annual appropriation by the district. The bonds are also secured by a cash-funded debt service reserve totaling $2.1 million.

KEY RATING DRIVERS

FULL SALES TAX BENEFITS DEBT SERVICE COVERAGE: Receipt of the full 1% sales tax following the repayment of the Fenton Gravois Bluffs tax increment finance district (TIF district) bonds in October 2013 is projected to positively impact the district's debt service coverage beginning in fiscal 2014.

DISTRICT LIMITED IN SCOPE AND SIZE: The district consists of 100 stores encompassing an extremely small 275 acres. There is point-of-sale concentration with the top 10 taxpayers accounting for approximately 73% of total sales tax revenue.

PARITY OR SUBORDINATE DEBT RISK: The bonds benefit from a turbo feature, which current projections show will allow for total retirement well in advance of final maturity. Issuance of parity or junior lien debt, while not currently anticipated, could extend repayment timing beyond current projections.

RISK OF NON-APPROPRIATION IS MINIMAL: The sales tax revenues securing the bonds are subject to appropriation by the district; however, there is little incentive not to appropriate as revenues remain stranded if not appropriated.

RATING SENSITIVITIES

LEVERAGE AND COVERAGE: The rating is effectively capped at the current level given the district's small size, high concentration and reliance on economically sensitive revenues. Additional leveraging, although not planned, could cause a decline in coverage and downward rating pressure.

CREDIT PROFILE

The district encompasses a 0.43 square mile area within the city of Fenton, MO, located proximate to the intersection of highway 141 and highway 30 roughly 20 miles southwest of downtown St. Louis. The district board of directors consists of five members, all of whom are associated with the developer; two advisory members; the city of Fenton finance director; and a MO Department of Transportation representative.

COLLECTION OF FULL SALES TAX/IMPROVED DEBT SERVICE COVERAGE

The district is located within the Fenton Gravois Bluffs TIF district. Fifty percent of the 1% sales tax was allocated to the TIF district until the earlier of: no TIF debt is outstanding, or, the expiration of the TIF district in October 2021. The TIF district's bonds were fully repaid on Oct. 1, 2013. Therefore, the district benefits from receipt of the full 1% sales tax. As a result, debt service coverage is projected to materially improve in fiscal 2014, from 1.8x in fiscal 2013 to a projected 3.6x in fiscal 2014.

CONCENTRATED, LIMITED PURPOSE DISTRICT

The district serves as one retail corridor of the city of Fenton, which is an affluent community with per capita income levels at 136% of the state average.

There are currently 100 occupied retail establishments located within the district. Anchor stores include Wal-Mart, Lowe's, and Target, supplemented by numerous small generic businesses. The St. Louis metropolitan region is saturated with identical and similar store competitors, thus there is no inherent competitive advantage. Fitch notes positively that occupancy rates remain high, at 98%.

There is point-of-sale concentration with the top 10 sales tax payers accounting for 73% of total fiscal 2013 sales tax revenues, heavily weighted towards the top five payers. There is non-impairment language whereby the district cannot repeal or amend its tax rate if such action would impair the district's ability to repay the bonds.

DEBT STRUCTURE PROVIDES FLEXIBILITY

The bonds are structured with a 2032 bullet maturity with a special mandatory redemption feature whereby all excess revenues must redeem the bullet maturity. This structure provides payment flexibility for the district, as the bonds are secured by historically volatile sales tax revenues.

ADDITIONAL AND SUBORDINATED DEBT RISK

The additional bonds test (ABT) is liberal at either: (1) historical net pledged sales tax revenues at least 1.40x pro forma debt service in that year; or (2) historical net pledged sales tax revenues at least 1.4x pro forma debt service in that year and projected pledged sales tax revenues for each year at least 1.4x pro forma debt service for each year. Fitch stress tests show that leveraging up to the ABT would not endanger timely bond repayment by final maturity but would materially extend the timeframe beyond what is currently projected under the turbo feature.

Fitch views as a risk the fact that the district may issue subordinate debt without restriction. As a potential risk, the junior bonds could effectively become senior-in-time to the outstanding 2032 bullet maturity. Excess funds that would otherwise be used to trim the size of the senior bullet payment (and thus make the final bullet payment manageable) would be funneled off to pay junior debt service. However, the risk is limited by the district's narrow scope and lack of further infrastructure needs.

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=854974

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Contacts

Fitch Ratings
Primary Analyst:
Nicole Wood, +1-212-908-0735
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Arlene Bohner, +1-212-908-0554
Senior Director
or
Committee Chairperson:
Jessalynn Moro, +1-212-908-0608
Managing Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Nicole Wood, +1-212-908-0735
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Arlene Bohner, +1-212-908-0554
Senior Director
or
Committee Chairperson:
Jessalynn Moro, +1-212-908-0608
Managing Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com