AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB' rating to the following bonds of Park Creek Metropolitan District, Colorado (the district):
--$40 million senior limited property tax supported revenue bonds tax-exempt series 2016A;
--$20 million senior limited property tax supported revenue bonds taxable series 2016B.
The bonds are scheduled to sell Dec. 7 via negotiation. Proceeds of the bonds will be used to refund a portion of the outstanding developer advances of the district.
In addition, Fitch affirms its 'BBB' rating on about $230 million in outstanding senior limited tax supported revenue refunding bonds, series 2015A. Fitch has withdrawn the district's Issuer Default Rating due to a lack of operating risk.
Fitch has withdrawn its ratings for the following bonds due to prerefunding activity:
--Senior limited property tax supported revenue refunding and improvement bonds series 2009 (prerefunded maturities only - 700387CJ0, 700387BT9, 700387BU6, 700387BV4, 700387BW2, 700387BX0, 700387BY8, 700387BZ5, 700387CA9, 700387CC5, 700387CG6) Previous Rating: 'BBB'/Stable Outlook;
--Senior limited property tax supported revenue refunding bonds series 2011A (prerefunded maturities only - 700387CK7, 700387CL5) Previous Rating: 'BBB'/Stable Outlook.
The Rating Outlook is Stable.
SECURITY
The bonds are payable from a senior lien on certain payments received pursuant to an interlocal agreement and derived from the levy of a limited ad valorem tax within the Westerly Creek Metropolitan District (WCMD). The payments also include up to $700,000 in annual specific ownership taxes collected in WCMD.
KEY RATING DRIVERS
The district's revenue base is narrow with strong near-term growth prospects that will likely moderate over the longer term. The dedicated tax revenue stream is historically resilient, although the district's practice of issuing to the additional bonds test (ABT) will likely keep debt service coverage thin. Operations are minimal, reflecting the limited purpose of the district--it was formed for the primary purpose of financing infrastructure improvements. The liability burden is high in relation to the resource base.
Economic Resource Base
The service area of the district and WCMD is located between downtown Denver and the Denver International Airport. The district's diverse development includes sizeable retail and industrial sectors as well as growing residential investments. The service area covers approximately 4,000 acres and serves an affluent (relative to the MSA and U.S.) population of about 24,000.
Dedicated Revenue Stream
Fitch expects that historically strong property tax growth will decelerate over time as the district approaches build-out. Recent growth trends for the small, concentrated tax base are positive.
Long-Term Liability Burden
The overall debt burden is high in relation to the resource base and direct debt amortizes very slowly. The district has no liabilities for retiree benefits.
Lack of Operating Risk
The district's operating responsibilities are minimal and are therefore not a significant credit factor.
RATING SENSITIVITIES
Tax Base Performance: Slower than anticipated tax base growth or sustained declines could result in weak debt service coverage and downward rating pressure.
Reduced Liability Burden: A material reduction in the district's long-term liability burden could result in positive rating consideration.
CREDIT PROFILE
The district was created for the purpose of assisting in the financing and construction of infrastructure improvements serving the former Stapleton International Airport in Denver. WCMD was created simultaneously to provide property tax and other revenue to the district (pursuant to an interlocal agreement) in exchange for completion of infrastructure improvements by the district. The district, WCMD, and Stapleton Business Center comprise the Stapleton service area, located seven miles east of downtown Denver.
Stapleton represents Denver's only remaining large tract of developable land that includes a residential component, and is in its sixth and final phase of development. The number of residential units under construction has accelerated in recent years, with about half of 9,044 planned single family homes completed. The developer reports that over 80% of 2,935 developable acres have been taken down, and expects that the remainder will be developed within the next two to three years. The district's assessed valuation (AV) is concentrated, but the level of concentration is trending down favorably. The top 10 taxpayers represented 18% of total values for 2017, down from 27% in 2013. These payers represent a mix of commercial and industrial properties.
Dedicated Revenue Stream
The district levies its debt service property tax at the maximum allowed mill levy rate and growth in the revenue stream is entirely dependent upon changes in tax base valuation from construction and biennial reassessments. Revenue growth has been strong since the district's creation in 2001 and continued growth is expected based on construction underway. District management projects 7.1% AV growth for 2017 collection based on new construction in place, followed by strong projected reassessment gains in 2018.
Although near-term tax base growth prospects are strong, Fitch expects AV expansion to moderate over time as the district approaches build-out. The tax base is very small and is concentrated both in terms of top taxpayer values and developer ownership interests. As seen in the last recession, decreased home values would have a direct effect on reassessment and an indirect impact on new residential and commercial construction within the taxing area.
To evaluate the sensitivity of the dedicated revenue stream to cyclical decline, Fitch considers both the revenue sensitivity results (using a moderate 1% decline in U.S. GDP scenario) and the largest decline in revenues over the period covered by the revenue sensitivity analysis. Based on the district's pledged revenue history, Fitch's analytical sensitivity tool (FAST) generates a 1% scenario decline in pledged revenues. The largest actual cumulative decline in historical revenues was 7.8% in 2012.
The revenue stream performs well when subjected to Fitch's stress analysis. Assuming issuance to the ABT, under which 2016 revenues provide 1.2 times (x) coverage of senior bond maximum annual debt service (MADS), pledged property tax revenues could tolerate a 15% drop and still cover MADS. This result is 15x the scenario decline and 1.9x the largest actual revenue decline in the review period.
Fitch discounts FAST results somewhat given the nature of the revenue stream. Excess coverage is necessary given the exposure of property tax revenues to changes in valuation due to the limited size and concentrated nature of the tax base. The rating also reflects Fitch's expectation that revenue growth will decelerate as the district matures; revenues within the review period include the earlier years of this development district, in which the fast pace of new construction produced more rapid AV growth.
Long-Term Liability Burden
The district's overall debt burden is high at 15% of market value, and is largely attributable to direct debt. The liability burden is an elevated 32% of personal income, reflecting the relatively small residential population. Fitch expects the burden to remain high given slow amortization of direct debt and the district's practice of annual senior debt issuance to refund developer advances. The district does not provide pensions or other post-employment benefits.
Lack of Operating Risk
General fund expenditures are modest and consist primarily of maintenance costs and the discretionary repayment of developer advances. Most district services are contracted out and capital costs can be adjusted during periods of economic stress. The district has no employees.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's 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
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