Fitch Affirms Beaver Creek Metro Dist, CO's GO Bonds at 'A+'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings has affirmed the 'A+' rating on the following Beaver Creek Metropolitan District (the district), Colorado bonds:

--$5.3 million General Obligation (GO) bonds, series 2014;

--$2.1 million series 2009 GO refunding bonds;

In addition, Fitch affirms the district's Issuer Default Rating (IDR) at 'A+'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an unlimited annual property tax levy.

KEY RATING DRIVERS

The district's financial profile is characterized by limited operations, strong financial planning, sound expenditure flexibility enhanced by the use of service contracts, and ample reserves, offsetting the district's lack of independent ability to raise revenues, as well as revenue and tax base concentration.

Economic Resource Base

The district is a master planned gated community with about 3,000 residential units, and is part of the Beaver Creek- Vail resort area. It is located 114 miles west of Denver, and adjacent to the town of Avon. The district's local economy is recreation and tourism based, with a very small year-round population, estimated at 300, and seasonal peaks at 7,500 to 10,000 during summer and winter. High end second homes comprise the majority of the district's housing stock and tax base, indicative of an affluent seasonal population.

The district was established in 1978 to provide water, fire protection, drainage, cable television, recreational services, and later included transportation and traffic control. District services are provided by contractual agreements with other municipalities. The annual budget is a very modest $4 million to $5 million. The district is governed by five-member board made up of non-developer property owners and residents, and has one full-time employee (general manager).

Revenue Framework: 'bbb' factor assessment

The district cannot increase revenues independently without voter approval. Fitch anticipates general fund revenue growth in line with inflation rate, due to expected property valuation stabilization.

Expenditure Framework: 'aa' factor assessment

Flexibility is solid, with low carrying costs. Almost all expenditure items are contracted out. Despite a heavy public safety focus, a reasonable amount of expenditure flexibility exists through potential service level adjustments.

Long-Term Liability Burden: 'aa' factor assessment

The district does not provide pension or other post-employment benefits to its only employee. The overall debt burden is estimated to be moderate in relation to personal income.

Operating Performance: 'aaa' factor assessment

Fitch expects the district to manage through economic downturns while maintaining a midrange level of budget flexibility with limited material deferral of required spending.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: the rating is sensitive to material changes in fundamental credit characteristics including the district's strong financial management practices and adequate reserves. The Stable Outlook indicates such a shift is unlikely.

CREDIT PROFILE

The district is predominantly residential, and almost fully developed. The assessed value (AV) dropped 20% in fiscal 2012, and has generally been flat since then. Fiscal 2016 AV is estimated to increase by 7%.

The property developer Vail Corp. is the district's largest taxpayer, comprising 10% of AV. The top 10 taxpayers, the majority of which are hotels and condominiums, account for a moderately high 19% of AV. Single-family homes comprise about half of the housing stock and average $5 million in value each. Fitch views the long-term economic prospects favorably.

Revenue Framework

More than 90% of the district's total general fund revenue comes from property tax levies. Revenues have historically been volatile, with a one-year decline of 20% in fiscal 2012.

Given relatively limited development potential with no vacant land left in the district, Fitch expects property tax revenue to grow around the inflation rate. However, over the long term, the growth prospect assessment is weighed down by the district's vulnerability to housing downturns and significant tax base concentration.

The district can increase its revenues only by seeking voter approval. Prior to 2016, the district levied at the 8.715 mills cap. In November 2015, the district obtained voter approval to increase the operating levy by $1.5 million per year adjusted for inflation with a sunset in 2021, raising the levy millage rate to 14 in 2016.

Expenditure Framework

General fund expenditures are concentrated in public safety and public works. The general fund also annually funds pay-go capital projects.

Most services are contracted out. The largest expenditure item is the fire service contract, with annual fee increases indexed to the local consumer price index. With limited growth in service needs, the general fund expenditure is expected to grow in line with revenues.

Despite significant public safety commitments, the district retains meaningful expenditure flexibility through its ability to adjust service levels under the service contracts and postpone capital projects. Debt service carrying costs are low, and the district only has one employee.

Long-Term Liability Burden

The district does not provide pension or other post-employment benefits. Overlapping debt comprises slightly more than half of the district's total long-term liability burden, with the remainder in direct debt. There is no plan to issue additional debt.

Operating Performance

Significant historical revenue volatility resulted in a severe stress case, according to Fitch's FAST model. Based on historical correlations with GDP performance, revenues decline 9.1% in the first year of the model and a further 3.7% in the second year. Despite projected revenue losses in this model, Fitch anticipates the district maintains superior revenue flexibility through economic downturns, leveraging its strong current reserve position and upcoming voter-approved revenue increases of $1.5 million annually for the next five years.

There is no revenue uncertainty at the time of budgeting, as the dominant revenue source is property tax, driven by the district's AV which is known beforehand. The district built up a financial cushion by proactively requesting and obtaining voter support for additional revenues to catch up with capital needs which were deferred during the last recession. Fiscal 2015 ended with $3.2 million unrestricted general fund balance, an equivalent of robust 89% of expenditures.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.

Applicable Criteria

U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)

https://www.fitchratings.com/site/re/879478

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1010662

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010662

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Yueping Liu
Associate Director
+1-415-732-5629
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Jose Acosta
Senior Director
+1-512-215-3726
or
Committee Chairperson
Barbara Ruth Rosenberg
Senior Director
+1-212-908-0731
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Yueping Liu
Associate Director
+1-415-732-5629
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Jose Acosta
Senior Director
+1-512-215-3726
or
Committee Chairperson
Barbara Ruth Rosenberg
Senior Director
+1-212-908-0731
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com