Fitch Affirms CIVICVentures (Anchorage), AK's $103.2MM Hotel Tax Revs at 'A+'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings affirms the following CIVICVentures (Anchorage), AK revenue bonds:

--$103.2 million revenue bonds, series 2006 (Anchorage Convention Center) at 'A+'.

The Rating Outlook is Stable.

SECURITY

Bonds are payable from a gross pledge of a portion of the municipality of Anchorage's (the municipality or MOA) hotel tax revenues.

KEY RATING DRIVERS

NARROW PLEDGED REVENUES; SOLID COVERAGE: Pledged revenues are derived from hotel taxes, a narrow and economically sensitive revenue stream. However, current coverage of MADS is good at 1.76 times (x) and with the project completed, no additional leverage is expected.

ADEQUATE LEGAL PROTECTIONS: The additional bonds test (ABT) is sound (1.75x MADS), the indenture is a closed loop, and additional security is provided by the cash-funded debt service reserve. Well-structured operating and capital reserve funds are also part of the flow of funds and are a partial mitigant to revenue volatility.

SOLID LOCAL ECONOMY; SOUND HOSPITALITY SECTOR: Fitch believes the municipality's diverse economy supports sustainable long-term hotel demand. MOA's hospitality sector benefits from its role as a regional/state destination for commercial services (banking and healthcare) as well a destination and starting point for tourists visiting the state. After three years of modest declines, the MOAs room inventory increased in 2013 and 2014.

WEAK DEBT PROFILE: Debt service escalates moderately resulting in very slow amortization. Although leverage of pledged revenues for debt service is relatively low, pledged revenues are highly leveraged when MOA's operating subsidy (funded with surplus pledged revenues) is included.

RATING SENSITIVITIES

RATING INCORPORATES VOLATILITY: The current rating level incorporates pledged revenue volatility within the historical range. Should negative volatility exceed this expectation, there would likely be downward rating pressure.

CREDIT PROFILE

CIVICVentures is a single-purpose nonprofit corporation created to finance the construction of a convention center in downtown Anchorage. CIVICVentures is governed by a five-member board of directors appointed by the mayor of the municipality. Construction of the convention center was completed on schedule and on budget in September 2008.

Anchorage is the center of business, trade, transportation, healthcare, education, government and tourism for the Gulf of Alaska region and accounts for more than 55% of the state's economic output.

CONCENTRATED REVENUES; SOUND LEGAL STRUCTURE

The municipality's total hotel tax rate is 12%. Pledged revenues are equal to about 8.59% of all taxable room revenue, or about 71.6% of all room taxes collected.

Voters authorized a four percentage point increase in the city's room tax to 12% and the issuance of revenue bonds to construct a new convention center in April 2005. The bonds are primarily payable from the new 4% convention center room tax (CCRT). The Anchorage Convention and Visitor's Bureau (ACVB) has also pledged 66.25% of the four percentage points it receives from the municipality to promote tourism. The MOA pledges $500,000 per year from its remaining four percentage points room tax to be increased or decreased each year by the percentage change in total hotel taxes collected for the prior year. The ACVB pledges another $500,000 from its remaining room tax revenues likewise to be increased or decreased each year by the percentage change in total hotel taxes collected for the prior year.

The convention center has been complete and operational since September 2008 and as a result no additional leverage is anticipated. The ABT is a sound 1.75x MADS. Additional strengths of the legal structure include the provision that surplus pledged revenues remain within the convention center operations (which may include the prepayment of debt), and well-structured capital and operating reserves.

The operating reserve receives surplus net revenues after debt service, up to a maximum of $5 million. The current balance equals $2.5 million. The capital reserve fund's current balance is about $3 million. As a closed loop, these indenture reserves help mitigate the risks of revenue volatility and potential increases in net operating costs. To date, the convention center debt service and operations have been fully covered by the 4% CCRT, leaving the excess pledged revenues to fund reserves and tourism promotion.

HISTORICAL REVENUES AND COVERAGE

After increasing an average of 5.1% annually from 1995 through 2008, hotel tax revenues declined each quarter in 2009 compared to the prior year, resulting in an overall decline of 17.7% in 2009. Starting in the first quarter of 2010, though, hotel tax revenues returned to growth and increased each year since. The compounded average annual growth rate for hotel tax revenues between the 2009 and 2014 bond years was 6.2%, for an aggregate increase of 35%. Total pledged revenues for the 2014 bond year reached a new peak of $14.9 million, covering $6.4 million of bond year 2014 debt service 2.32x and MADS of $8.4 million by 1.76x.

Despite the decline in revenues, MADS coverage never dipped below 1.35x and annual debt service (ADS) coverage hit bottom at 1.91x. Under Fitch's base case, pledged revenues increase at the compounded average annual rate from 2008-2012 of 0.5%. Due to the escalating debt service, ADS coverage decreases moderately from 2.32x in 2014 to 1.99x in 2038.

Pledged revenues hold up well under various Fitch stress scenarios. Under one scenario, revenues drop 25% in the 2015 bond year, and then grow 1% per year thereafter. ADS coverage remains at or above 1.66x and MADS drops to 1.34x in 2016. Pledged revenues would need to decline by a high 43.5% for MADS coverage to fall to 1.0x.

HOSPITALITY IMPORTANT SECTOR IN ANCHORAGE; SOME CONCENTRATION

The convention and visitor industry is an important part of the Anchorage economy, and the city, through the ACVB, proactively markets itself to regional, national, and international audiences. As the hub for many services and transportation in Alaska, Anchorage is also a leading visitor destination for in-state tourist and commercial travel. Wealth levels in Anchorage are above state and national averages, and employment and wage levels have grown steadily in recent years.

Hotel taxes are somewhat concentrated in the 10 largest tax generators which provide a high 52% of the total. After the closure of three hotels in recent years resulting in the net loss of 375 rooms (or about 4.5% of the number of rooms in 2011), 2013 and 2014 saw the number of rooms increase by an aggregate 673. In addition, one 135 room hotel has been permitted and is expected to open in 2015 and an additional similarly sized hotel has submitted permit applications, supporting level to growing hotel tax revenues over the near term.

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.

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=979564

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Contacts

Fitch Ratings
Primary Analyst
Karen Ribble
Senior Director
+1-415-732-5611
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Andrew Ward
Director
+1-415-732-5617
or
Committee Chairperson
Karen Krop
Senior Director
+1-212-908-1661
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Karen Ribble
Senior Director
+1-415-732-5611
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Andrew Ward
Director
+1-415-732-5617
or
Committee Chairperson
Karen Krop
Senior Director
+1-212-908-1661
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com