Fitch Rates $90MM CIVICVentures (Anchorage), AK Hotel Tax Rev Rfdg Bnds 'AA-'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings assigns an 'AA-' rating to the following CIVICVenture (Anchorage), AK revenue bonds:

--$90.75 million revenue refunding bonds, series 2015 (Anchorage Convention Center).

Proceeds will be used to current refund CIVICVentures' outstanding hotel tax revenue bonds, series 2006 for debt service savings. The bonds are expected to price on or about August 12.

In addition, Fitch upgrades $103.2 million in outstanding revenue bonds, series 2006 to 'AA-' from 'A+'.

The Rating Outlook is Stable.

SECURITY

Bonds are payable from a gross pledge of a portion of the municipality of Anchorage's (the municipality or MOA) hotel tax revenues. Additional security is provided by a cash-funded debt service reserve fund sized at maximum annual debt service (MADS).

KEY RATING DRIVERS

SOLID COVERAGE: The upgrade to 'AA-' reflects solid debt service coverage (DSC) of estimated series 2015 MADS by bond year 2014 revenues. The 2.08x and 57% revenue cushion compares favorably to the recent 17% decline in pledged revenues during 2009. With the project completed, no additional leverage is expected.

NARROW PLEDGED REVENUES; ADEQUATE LEGAL PROTECTION: Pledged revenues are derived from hotel taxes, a narrow and economically sensitive revenue stream. The additional bonds test (ABT) is sound (1.75x MADS), the indenture is a closed loop, and additional security is provided by the cash-funded debt service reserve. Well-structured operating and capital reserve funds are also part of the flow of funds and are a partial mitigant to revenue volatility.

SOLID LOCAL ECONOMY; SOUND HOSPITALITY SECTOR: Fitch believes the municipality's diverse economy supports sustainable long-term hotel demand. MOA's hospitality sector benefits from its role as a regional/state destination for commercial services (banking and healthcare) as well a destination and starting point for tourists visiting the state. After three years of modest declines, the MOA's room inventory increased in 2013 and 2014.

MODERATELY IMPROVED DEBT PROFILE: The refunding debt service escalates moderately through 2026 and is level thereafter, resulting in bond year 2016 debt service of an estimated $6 million compared to MADS of $7.2 million.

RATING SENSITIVITIES

RATING INCORPORATES VOLATILITY: The current rating level incorporates pledged revenue volatility within the historical range. Should negative volatility exceed this expectation, there would likely be downward rating pressure.

RATING CAPPED AT ANCHORAGE GO: The rating is capped at the rating on the Municipality of Anchorage (unlimited tax general obligation bonds rated 'AA+', Stable Outlook by Fitch). Municipality credit quality falling below 'AA-', would result in a commensurate downgrade of the bonds.

CREDIT PROFILE

CIVICVentures is a single-purpose nonprofit corporation created to finance the construction of a convention center in downtown Anchorage. CIVICVentures is governed by a five-member board of directors appointed by the mayor of the municipality. Construction of the convention center was completed on schedule and on budget in September 2008.

Anchorage is the center of business, trade, transportation, healthcare, education, government and tourism for the Gulf of Alaska region and accounts for more than 55% of the state's economic output.

CONCENTRATED REVENUES; SOUND LEGAL STRUCTURE

The municipality's total hotel tax rate is 12%. Pledged revenues are equal to about 8.59% of all taxable room revenue, or about 71.6% of all room taxes collected.

Voters authorized a four percentage point increase in the city's room tax to 12% and the issuance of revenue bonds to construct a new convention center in April 2005. The bonds are primarily payable from the new 4% convention center room tax (CCRT). The Anchorage Convention and Visitor's Bureau (ACVB) has also pledged 66.25% of the four percentage points it receives from the municipality to promote tourism. The MOA pledges $500,000 per year from its remaining four-percentage-points room tax to be increased or decreased each year by the percentage change in total hotel taxes collected for the prior year. The ACVB pledges another $500,000 from its remaining room-tax revenues likewise to be increased or decreased each year by the percentage change in total hotel taxes collected for the prior year.

The convention center has been complete and operational since September 2008 and as a result no additional leverage is anticipated. The ABT is a sound 1.75x MADS, but also includes a provision in which the pledged of ACVB revenues (2.65%) is removed from the security if the CCRT alone covers MADS 1.75x. Additional strengths of the legal structure include the provision that surplus pledged revenues remain within the convention center operations (which may include the prepayment of debt), and well-structured capital and operating reserves.

The operating reserve receives surplus net revenues after debt service, up to a maximum of $5 million. The current balance equals $6 million. The capital reserve fund's current balance is about $3.06 million. As a closed loop, these indenture reserves help mitigate the risks of revenue volatility and potential increases in net operating costs. To date, the convention center debt service and operations have been fully covered by the 4% CCRT, leaving the excess pledged revenues to fund reserves and tourism promotion.

HISTORICAL REVENUES AND COVERAGE

After increasing an average of 5.1% annually from 1995 through 2008, hotel tax revenues declined each quarter in 2009 compared to the prior year, resulting in an overall decline of 17.7% in 2009. Starting in the first quarter of 2010, though, hotel tax revenues returned to growth and increased each year since. The compounded average annual growth rate for hotel tax revenues between the 2009 and 2014 bond years was 6.2%, for an aggregate increase of 35%. Total pledged revenues for the 2014 bond year reached a new peak of $14.9 million, covering an estimated $6 million of bond year 2016 debt service 2.51x and MADS of $7.23 million by 2.08x.

Despite the decline in revenues, MADS coverage never dipped below 1.35x and annual debt service (ADS) coverage hit bottom at 1.91x. Under Fitch's base case, pledged revenues increase at the compounded average annual rate from 2008-2012 of 0.5%. Due to the partly escalating debt service, ADS coverage decreases moderately from 2.51x in 2016 to 1.32x in 2038.

Pledged revenues hold up well under various Fitch stress scenarios. Under one scenario, revenues drop 25% in the 2016 bond year, and then grow 1% per year thereafter. ADS coverage remains at or above 1.74x (2027) and MADS drops to a low 1.58x in 2017. Pledged revenues would need to decline by a high 57% from 2015 levels for MADS coverage to fall to 1.0x. At the 1.75x ABT, revenues would need to fall a solid 43% to reach 1x MADS.

HOSPITALITY IMPORTANT SECTOR IN ANCHORAGE; SOME CONCENTRATION

The convention and visitor industry is an important part of the Anchorage economy, and the city, through the ACVB, proactively markets itself to regional, national, and international audiences. As the hub for many services and transportation in Alaska, Anchorage is also a leading visitor destination for in-state tourist and commercial travel. Wealth levels in Anchorage are above state and national averages, and employment and wage levels have grown steadily in recent years.

Hotel taxes are concentrated in the 10 largest tax generators which provide a high 52% of the total. After the closure of three hotels in recent years resulting in the net loss of 375 rooms (or about 4.5% of the number of rooms in 2011), 2013 and 2014 saw the number of rooms increase by an aggregate 673. In addition, one 135-room hotel has been permitted and is expected to open in 2015 and an additional similarly sized hotel has submitted permit applications, supporting level-to-growing hotel tax revenues over the near term.

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.

Applicable Criteria

Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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Contacts

Fitch Ratings
Primary Analyst:
Karen Ribble, +1-415-732-5611
Senior Director
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst:
Andrew Ward, +1-415-732-5617
Director
or
Committee Chairperson:
Arlene Bohner, +1-212-908-0554
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Karen Ribble, +1-415-732-5611
Senior Director
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst:
Andrew Ward, +1-415-732-5617
Director
or
Committee Chairperson:
Arlene Bohner, +1-212-908-0554
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com