Fitch Affirms Vistancia Community Facilities District's (Peoria, AZ) GOs at 'A-'; Stable Outlook

AUSTIN, Texas--()--Fitch Ratings affirms the following Vistancia Community Facilities District's (the district) of Peoria, Arizona ratings:

--$51.1 million of outstanding general obligation (GO) bonds, series 2002, 2005, and 2006 at 'A-'.

The Rating Outlook is Stable.

SECURITY

The bonds are direct obligations of the district and are payable from an unlimited ad valorem tax levied against all taxable property located within the district. Debt service on the bonds is also payable from developer contributions to make up tax shortfalls, pursuant to standby contribution agreements executed for each series between the district and the developer of the project, as well as certain debt service reserve funds (DSRFs) and letters of credit (LOCs).

KEY RATING DRIVERS

LIMITED RESOURCE BASE: The 'A-' rating reflects the district's still limited tax base; more than half of debt service is provided by developer contributions. A resurgence of area development activity bodes well for future tax base appreciation.

CONSISTENCY OF DEVELOPER CONTRIBUTIONS: The developer remains current with subsidy payments to maintain the historical target property tax rate and the developer continues to meet certain financial tests required by the city.

ADDITIONAL LIQUIDITY SUPPORT: LOC and DSRFs are in place to help offset any potential future debt service payment shortfalls.

LACK OF NEW DEBT PLANS: Additional borrowings are not planned for the district at this time.

RATING SENSITIVITIES

STRONG FINANCIAL MANAGEMENT: The rating is sensitive to continued improvement in the local economy as manifested in a recovery housing market and timely developer contributions.

CREDIT PROFILE

The district is located in Peoria, which is in the northwest portion of the Phoenix metropolitan area. The district was formed in 2002 and contains more than 6,900 acres.

RESUMPTION OF HOMES SALES AND DEVELOPMENT

Land within the district is being developed as a master-planned, mixed-use development. Phases 1 and 2 of infrastructure development are complete with the Trilogy and Vistancia Villages. As of the first quarter of fiscal 2015, 5,000 homes have been sold in Vistancia, representing about half of full buildout.

Full cash value (FCV) in the district increased 14.2% to $1.1 billion in fiscal 2015, and the city estimates fiscal 2016 values will top the fiscal 2009 peak, reflecting resumption of the sale and development of homes. Estimated fiscal 2015 secondary assessed value (SAV), which is used for the levy of debt service taxes, is $116.4 million, still below the 2009 peak of $144 million.

MODERATE DEBT LOAD

Debt authorization of $100 million was approved for the district in 2002. The district's outstanding direct debt is moderate at $51.1 million, representing 4.5% of fiscal 2015 FCV, although with rapid amortization of 72% in 10 years, this level should decline substantially over the medium term. Annual debt service is level at about $5.5 million through final maturity in July 2026.

PAYER CONCENTRATION RISK

Although the bonds are secured by an unlimited ad valorem tax pledge, the board has elected to maintain the property tax rate at $2.10 per $100 of taxable value which is below the rate needed to pay the full debt service. Pursuant to a standby contribution agreement with the district, the developer makes semi-annual payments each year to make up the difference between the annual debt requirement and property tax revenues received. Developer contributions of $3.1 million contributed about 59% of the district's estimated fiscal 2014 debt service.

In case of insufficient funds in the debt service fund on the day preceding payment date, the district may access the DSRFs that were funded in connection with the series 2002 and series 2005 bonds. Additional credit support consists of a developer-established LOC in an amount equal to 10% of the par amount of each series of bonds, subject to annual renewal. The bank is authorized to draw upon the LOC if developer payments under the standby contribution agreements are insufficient or in other specific circumstances. The city reports no draws on the LOCs or DSRFs to date. Combined debt service reserves and LOCs of about $11 million cover two years of level debt service. The city has no liability for the district's debt.

Absent developer contributions, the tax rate would rise from the promised $2.10 to approximately $4.70 based on recent TAV levels. Fitch notes that based on the city of Peoria's records, the developer has made consistent and timely payment of required contributions since inception.

In late 2009, ownership of the development changed from Shea Sunbelt Pleasant Point, LLC. The developer is now Vistancia Land Holdings, LLC, a subsidiary of Stratford Land, out of Dallas, Texas. However, the city continues to require J.F. Shea Co., the parent company of the previous developer, to meet its financial obligations under the various development and standby contribution agreements.

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, 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:

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983301

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Contacts

Fitch Ratings
Primary Analyst
Rebecca Meyer
Director
+1 512-215-3733
Fitch Ratings, Inc.
111 Congress, Ste. 2010
Austin, TX 78701
or
Secondary Analyst
Yueping Liu
Associate Director
+1 415-732-5629
or
Committee Chairperson
Arlene Bohner
Senior Director
+1 212-908-0554
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Rebecca Meyer
Director
+1 512-215-3733
Fitch Ratings, Inc.
111 Congress, Ste. 2010
Austin, TX 78701
or
Secondary Analyst
Yueping Liu
Associate Director
+1 415-732-5629
or
Committee Chairperson
Arlene Bohner
Senior Director
+1 212-908-0554
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com