Fitch Downgrades Howard Bend Levee District, MO's Bonds to 'BBB-'; Outlook
NEW YORK -- January 15, 2013
Fitch Ratings downgrades to 'BBB-' from 'BBB+' its ratings on the following
Howard Bend Levee District, Missouri (the district) securities:
--$19,145,000 million levee district refunding and improvement bonds, series
--$5,230,000 (Creve Coeur airport sub-area) levee district improvement bonds,
The Rating Outlook is Stable.
The bonds are special limited obligations payable solely from a special levee
tax (SLT) against certain benefited properties. The amount of the SLT is
proportionate to the benefits conferred upon each parcel. The bonds are also
secured by deal-specific, cash-funded debt service reserves funds (DSRF) equal
to the IRS standard.
KEY RATING DRIVERS
DOWNGRADE REFLECTS LIMITED CASH AVAILABLE FOR DEBT SERVICE: The downgrade
reflects the limited cash available for debt service coverage outside of
annual collections. While coverage is still sufficient, the diminished cushion
and expectation of further drawdown of capital improvement cash provides less
protection against downside risk and therefore reduces credit quality.
MARGIN OF ADDITIONAL FINANCIAL FLEXIBILITY: The district has the authority to
levy up to 1.2x coverage for annual debt service between its installment and
maintenance levy. It currently levies a total SLT equal to annual debt service
(1.0 times [x] coverage).
SIGNIFICANT TAXPAYER CONCENTRATION: Both series of bonds display considerable
taxpayer concentration with the top 10 payers accounting for at least 70% of
total collections. The number of taxpayers obligated to repay both series is
also extremely limited.
LIMITED ECONOMY: The district's economy is notably limited with gaming and
agriculture representing the majority of economic activity within the
WHAT COULD TRIGGER A RATING ACTION
DECLINES IN TAX COLLECTIONS: Interruption in the timely payment of the SLT by
top taxpayers would create a major cash flow disruption, which could apply
further downward pressure to the rating.
EROSION OF UNRESERVED CASH BALANCES: Further erosion of discretionary cash
reserves may be cause for additional rating action.
The district encompasses a 10.4 square mile area 20 miles northwest of St.
Louis. It was incorporated in 1987 to protect and reclaim land from wash and
bank erosion and water overflow. The district's board is comprised of five
district property owners.
HIGH TAXPAYER CONCENTRATION
Taxpayer concentration is a significant credit concern. Hollywood Casino St.
Louis (the casino) is the largest taxpayer for the 2005 series bonds and
accounts for 37% of the total STL on those bonds; the top 10 taxpayers account
for 70%. The top taxpayer for the series 2007 bonds is a trust which accounts
for 18% of the total SLT, and the top 10 comprise 83%. The project subarea
associated with the series 2007 bonds does not include the casino. Overall,
the SLT is levied on 385 benefited properties associated with the series 2005
transaction and 148 benefited properties associated with the series 2007
SLT COLLECTION RISK
The bonds are special limited obligations payable solely from an SLT levied on
certain property in proportion to the flood abatement benefits for each
parcel. The district is required to impose the SLT levy in an amount
sufficient to pay debt service on the bonds. The district currently levies a
total SLT equal to annual debt service (1.0x coverage). The district may levy
up to 1.1x coverage for its SLT levy and an additional 10% emergency levy,
providing up to 1.2x coverage.
The district additionally imposes operating and maintenance levies which
accounted for 20% of the district's levy in 2012 and which includes a small
margin for uncollected taxes (3%-5% of total SLT levy) as part of its
SLTs are collected by the county and unpaid taxes result in a lien placed upon
the delinquent parcel of land; this lien is subordinate to property taxes. Tax
collection rates have exceeded 97% since 2007 through the recent economic
The district's ongoing operations are limited (as is the case with most
special districts), with the bulk of total expenditures consisting of debt
service. Aside from annual levies, the district reports approximately $900,000
on hand in cash reserves usable for debt service, representing approximately
40% of 2012 debt service. This amount is down from previous reviews and the
reduced margin is the major reason for the downgrade.
Fitch notes that the potential for cash flow volatility in cases of major
taxpayer non-payment is an important credit weakness. During a period of
extended non-payment, the district would need to seek a readjustment of the
proportional benefits assigned to each parcel net of the delinquent taxpayer,
and reallocate the tax on a pro rata basis based on the new proportional
benefit assessment. This remedy is without legal precedent and the timeline
for this remedy (as well as foreclosure) is uncertain.
The district's economy is notably limited, reliant predominantly on gaming and
agriculture. The casino is the largest district employer with approximately
1,800 employees. Penn National Gaming Inc. recently purchased the casino for
approximately $610 million in an all-cash transaction and announced it will
invest approximately $61 million in updating and rebranding the facility. Some
additional development within the district may occur due to the completion of
improvements to nearby state highway 141.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
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.
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
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