AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings assigns the 'BB' rating to the following Central Platte Valley Metropolitan District, CO general obligation (GO) bonds:
--$22.45 million GO refunding bonds, series 2014.
Bond proceeds will be used to refund outstanding debt and fund a swap termination payment. The bonds are scheduled to price via negotiation during the week of Oct. 6.
The Rating Outlook is Stable.
The 2014 bonds are secured by an unlimited annual property tax levy on all property located within the current boundaries of the district.
KEY RATING DRIVERS
HIGH CONCENTRATION; LIMITED BASE: The district's tax base is highly concentrated which is not unusual for limited purpose special districts. Ongoing construction and future development is not projected to reduce concentration due to the small geographic size of the district.
TAX BASE DIFFERENTIALS/CONCENTRATION: The tax base that secures the 2014 bonds (the operating district) is a subset of the larger original district that secures the 2013A bonds (rated 'BBB-' by Fitch). The 'BB' rating on 2014 operating district bonds reflects a much higher tax payer concentration.
DOWNTOWN DEVELOPMENT BOOM: The district encompasses one of Denver's major redevelopment efforts. Its strategic downtown location is fueling rapid growth in apartments, condominiums, and commercial office buildings, aided by the concurrent development of the Regional Transportation District's (RTD) bus and rail transit hub on adjacent property. The district has more than recouped recessionary assessed value (AV) losses. Recent and ongoing building activity should ensure a positive trajectory for the district's taxable values through 2016.
MANAGEABLE TAX INCREASES ASSUMED: Fitch believes development in the district is likely to continue, but the Fitch's base case includes only the value of existing properties. Total operating district tax rate increases needed to meet level debt service in this scenario, assuming no substantial further tax base declines, are of a magnitude Fitch believes would be manageable.
HIGH DEBT; LEVEL DEBT SERVICE: Overall debt is very high relative to market value and is amortized slowly. The completion of all infrastructure and lack of future debt plans should allow these metrics to improve slowly over time assuming at least modest tax base growth.
SUSTAINED TAX BASE LOSSES: Large and sustained tax base losses could lead to negative rating pressure.
CONCENTRATION LIMITS UPWARD MOVEMENT: The very high tax base concentration limits the rating to its current level.
The Central Platte Valley Metropolitan District is located in lower downtown Denver and is in close proximity to Denver Union Station.
PARTIALLY DISTINCT TAX BASES
District bonds are secured by two distinct tax bases. The original 63 acre district secures the 2013A ULTGO bonds (rated 'BBB-' by Fitch). A smaller 38 acre subset of the original, the operating district, secures the 2014 ULTGO bonds.
COMMERCIAL DOMINATES OPERATING DISTRICT
The smaller operating district is comprised primarily of commercial office buildings, accounting for a high 84% of 2015 AV. Nearly all other properties are vacant land parcels which are zoned mixed-use, including commercial office properties, for future development. The operating district is adjacent to the historic Denver Union Station and the future hub of RTD's rail and bus operations.
HIGH TAX BASE CONCENTRATION
The operating district's tax base concentration is notably elevated with the top 10 taxpayers comprising 92% of 2015 AV. Commons 19 LLC is the largest tax payer, accounting for 30% of 2015 AV. Commons 19 LLC is the real property owner of the land containing a commercial office building and a parking structure. Legacy Plaza, a commercial property, is the second largest taxpayer at 16% and is fully leased as the Gates Rubber Company headquarters. The headquarters for DaVita Healthcare Partners' (IDR 'BB-' by Fitch) comprises 15% of the district's AV.
MIXED GOVERNING BOARD
The district's five-member governing board includes two members affiliated with current developers, East West Partners and Continuum Partners. Other board members are not currently affiliated with current property owners. East West Partners is the largest owner of remaining undeveloped property.
HIGH DEBT BUT NO ANTICIPATED FURTHER NEEDS
Overall debt to market value is very high at 21% which is not unusual for a limited purpose special district. Fitch notes that all infrastructure is in place for future development, precluding the need for any future debt. Additionally, the district does not owe developers for any advances or reimbursements, enhancing its operating flexibility.
The current offering will refund a loan secured solely by the operating district and is in the form of a variable rate demand obligation. Concurrently, the associated swap will be terminated. The refunded loan was structured with a large balloon maturity in 2016 and served to provide bridge financing during the operating district's early years of development. Debt service is level. Payout is structured very slowly with only 19% of principal retired in 10 years.
ANALYSIS DOES NOT ASSUME FUTURE AV GROWTH
It's the district's goal to maintain or reduce mill rates for debt service for the first several years to provide sum sufficient coverage of higher annual debt service. Such a goal would require continued large AV gains which Fitch considers aggressive. However, substantial development is currently underway throughout the district.
Properties completed in time for the 2015 collection year include three large residential apartment complexes (with project costs ranging from $30 million - $65 million) and two commercial projects for a total $148 million in estimated market value. As a result, the preliminary certified AV for 2015 posted a 14.6% gain over the year prior. Based on projects currently under construction, the district projects another large AV gain in 2016. Although 2016 is a reassessment year, Fitch believes the likelihood of reappraisal losses is less than in previous years given the reported results of recent property transactions on which market values are based.
Projecting future tax base and development trends beyond the projects that have been completed is difficult. Fitch's base case assumes AV remains flat at the 2015 level. Total operating district debt service millage, to support operating and the larger district's debt service, would need to increase by a large 41% from the current level of 34 mills to 48 mills by 2016. Although this represents a steep increase, it's comparable to past debt service mill levy rates.
The district has no employees and therefore no obligations for pension or other post-employment benefits (OPEB). The debt service fund balance currently totals $2.3 million in reserves pledged to the bonds, including a cash-funded debt reserve equal to 50% of AADS which Fitch considers positively given the district's early stage of development.
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, and 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:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria