Correction: Fitch Downgrades Howard Bend Levee District, MO Bonds to 'BBB-';
NEW YORK -- January 17, 2013
(This is a correction of a release originally issued January 15, 2013. It
contains amended details regarding the amount and use of district cash
available for debt service and tax levying capacity available to the district
in cases of taxpayer non-payment.)
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
LIMITED EXCESS CASH AVAILABLE FOR DEBT SERVICE: The 'BBB-' rating reflects the
limited cash available for debt service outside of annual collections. While
coverage is still sufficient, the district's plan to drawdown capital
improvement funds for district improvements, while appropriate, nonetheless
provides less protection against potential revenue disruption and therefore
reduces credit quality.
MARGIN OF ADDITIONAL FINANCIAL FLEXIBILITY: The district maintains the
authority to levy up to 1.1x coverage for annual debt service as well as a
maintenance levy available but not intended for debt service. It currently
levies an installment levy equal to annual debt service (1.0 times [x]
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 small and lacks diversity
with gaming, agriculture and governmental interests represented.
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.
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
The SLT is levied on 385 benefited properties associated with the series 2005
transaction and 148 benefited properties associated with the series 2007
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. Major
taxpayers for the 2005 series additionally include the State of Missouri, St.
Louis County, and Metropolitan St. Louis Sewer District. Major taxpayers for
the 2007 series include Creve Coeur Airport Improvement Corp. and city of
SLT COLLECTIONS STRUCTURED WITH TIGHT COVERAGE
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 (1.0 times [x] 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 $3.6
million on hand in capital, maintenance and emergency funds which are
technically available for debt service. These funds have declined since last
year as the district appropriately supported capital and maintenance projects.
While Fitch recognizes the district's investment as a credit strength, the
reduced liquidity nevertheless diminishes the cushion against potential
payment disruptions. The 'BBB-' rating reflects Fitch's expectation that the
district will maintain minimal additional funds outside of the DSRF.
Fitch notes that the potential for cash flow volatility in cases of major
taxpayer non-payment is a significant credit weakness. In cases of major
taxpayer non-payment, cash flow gaps would be filled with the DSRF until
collection of the subsequent annual installment levy. The district is legally
required to increase the SLT on all payers to support debt service and
replenish the DSRF which is cash-funded at $2.5 million or 113% of 2012 debt
The timing of SLT levy and collections is satisfactory in that the levy is due
Dec 31, in advance of the March 1 principal and interest payment. While Fitch
recognizes the district's legal authority to increase revenue in the event of
non-payment, Fitch believes the practical application of such authority could
prove challenging over an extended term. Fitch notes that the district
maintains a strong history of solid SLT collections.
The district's economy is notably limited, reliant predominantly on gaming and
agriculture but with governmental and quasi-governmental interests
represented. 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.
Governmental entities are subject to the district's levy under state statute.
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'.
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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Stephen Friday, +1-212-908-0384
One State Street Plaza
New York, NY 10004
Karen Wagner, +1-212-908-0230
Steve Murray, +1-512-215-3729
Elizabeth Fogerty, +1-212-908-0526 (New York)
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