Fitch Downgrades Chesterfield Valley Transportation Development District, MO to 'BB'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded Chesterfield Valley Transportation Development District (the district), Missouri's transportation sales tax revenue bonds series 2006 to 'BB' from 'A-'. The bonds are payable solely from a 0.375% sales tax pledge on virtually all retail sales within the district. The Rating Outlook is Stable.

The rating reflects the pledge of a narrow revenue stream that is susceptible to fluctuations due to economic cycles, actual gross sales figures varying notably from projections resulting in insufficient sales tax revenues to pay annual debt service, and weak legal provisions. These credit considerations are partially tempered by a fully funded debt service reserve, and the district's attractive physical location and composition. The key rating drivers are the district's ability to generate adequate sales tax revenue from a retail base with no discernable competitive advantage, and the rate of depletion of the cash funded debt service reserve if annual sales collections prove inadequate.

Aggregate taxable sales figures, from which future sales tax collections were forecasted, were appreciably incorrect in the 2006 consulting report. The report backed into the gross sales figures from actual tax collections from a tax increment district coterminous with the district. However, actual gross sales figures compared to projected gross sales have diverged in excess of 32% for each of the last three years. Due to the magnitude of the negative variance, sales tax revenues have been well below projections. Sales tax revenues have not materialized to the point revenues are projected to be insufficient to cover debt service in April 2010, thus the debt service reserve is expected to be tapped for roughly $120,000.

Assuming no growth in sales tax revenues from projected 2009 collections, annual revenues will be inadequate to service debt service through 2015. However, there will be sufficient funds in the debt service reserve to plug the annual shortfalls, and satisfy all debt service payments through 2016. From 2017 through 2025, the district is required to pay only interest on a bullet maturity in 2026. All excess sales tax revenues are required to redeem the 2026 bullet via a special mandatory redemption feature. Again, assuming no growth, annual revenue projections are estimated to generate adequate excess sales tax revenues to retire the bullet maturity.

Further compounding the uncertainty of the sales tax pledge is the current state of the national and regional economy, and the reliance on retail sales within a limited geographic region. For the period of January through September 2009, sales tax collections were down 7.4% compared to the same time period in 2008. If 2009 sale tax revenues are further suppressed due to weak consumer spending during the holiday season, inadequate debt service coverage from collections will intensify.

The district's physical location and composition is encouraging. The district encompasses a sizable 7.43 square mile area located along a five-mile corridor of Interstate-64 in western St. Louis County. As of September 2009, there were 398 retail establishments located within the district, and comprised one of the largest concentrations of big box retailers in the region. As to be expected with big box retailers, there is point-of-sale concentration with the top 15 payers accounting for 55% of total 2008 sales tax collections. The district contains in excess of 7 million square feet of total development with over 20% of the total land area still undeveloped.

Legal covenants are loosely written, allowing for liberal debt issuance, although Fitch does not believe the district would issue additional debt given its current situation. Furthermore, the district board is comprised of the several county officials thus providing a degree of independent oversight against casual dilution of sales tax revenues. That being said, the district may issue subordinate debt without restriction and such debt could become senior in time to the 2026 bullet maturity. Excess funds that would otherwise be used to trim the 2026 bullet maturity would be funneled off to pay subordinate debt service. Also, the definition of pledged revenues includes the debt service reserve thus artificially inflating coverage ratios in the additional bonds test.

Additional information is available at www.fitchratings.com.

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