Fitch Affirms Howard Bend Levee District Bonds At 'BBB-'; Outlook Stable
SAN FRANCISCO -- January 10, 2014
Fitch Ratings affirms the 'BBB-' ratings on the following Howard Bend Levee
District, Missouri (the district) securities:
--$18,390,000 million levee district refunding and improvement bonds, series
--$5,005,000 (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
assessment (SLA) against certain benefited properties. The SLA is set to cover
debt service and 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
STRUCTURED WITH THIN COVERAGE: The district is required to maintain only thin
coverage of 1.0x on the bonds from its annual installment levy, and has
additional flexibility in its authority to levy up to 1.1x for debt service
under emergency levy authorization as well as up to a 10% maintenance levy
usable for but not intended for debt service.
LIMITED EXCESS CASH AVAILABLE FOR DEBT SERVICE: The rating additionally
reflects Fitch's long-term expectations that the district will maintain
limited additional cash on hand for debt service outside of annual
SIGNIFICANT TAXPAYER CONCENTRATION: Both series of bonds display considerable
taxpayer concentration with the top 10 payers accounting for at least 75% of
total collections. However, a substantial portion of top taxpayers are
governmental or quasi-governmental entities. The number of taxpayers obligated
to repay both series is also notably limited.
LIMITED ECONOMY: The district's economy is small and concentrated with gaming,
agriculture, and governmental interests represented.
DECLINES IN TAX COLLECTIONS: Interruption in the timely payment of the SLA by
top taxpayers would create a major cash flow disruption, which in the short
term could result in DSRF use. Tapping the DSRF would apply downward pressure
to the rating.
SUBSTANTIAL DIVERSIFICATION: A high degree of diversification in taxpayers
from current very concentrated levels may create upward rating momentum. Fitch
does not believe that this is likely in the short term.
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 for district and both
series of bonds.
For the 2005 bonds, the SLA is levied on 391 benefited properties. Hollywood
Casino St. Louis (the casino) is the largest taxpayer for the 2005 series
bonds and accounted for 37% of the total STL on those bonds in 2012; the top
10 taxpayers account for 76%. Seven of the top 10 taxpayers for the 2005
series are governmental entities and include the State of Missouri, St. Louis
County, and Metropolitan St. Louis Sewer District.
For the 2007 sub-area bonds, the SLA is levied on approximately 150 benefitted
properties. The top taxpayer for the series 2007 bonds was a trust which
accounted for 18% of the total SLA in 2012, and the top 10 comprise 83%. The
project subarea associated with the series 2007 bonds does not include the
casino. Only one of the top ten taxpayers is a governmental entity: city of
SLA COLLECTIONS STRUCTURED WITH TIGHT COVERAGE
The bonds are special limited obligations payable solely from an SLA levied on
certain property in proportion to the flood abatement benefits for each
parcel. The district is required to impose the SLA levy in an amount
sufficient to pay debt service on the bonds. The district currently levies a
total SLA equal to annual debt service (1.0x coverage). The district may levy
up to 1.1x coverage for its SLA levy and an additional 10% emergency levy,
providing up to 1.2x coverage.
SLAs 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.
Governmental entities are subject to the district's levy under state statute.
The district's ongoing operations are limited with the bulk of total
expenditures consisting of debt service. Aside from annual levies, the
district reports approximately $700,000 currently on hand in maintenance and
emergency funds which are technically available for debt service. The 'BBB-'
rating reflects Fitch's expectation that the district will maintain minimal
additional funds outside of the DSRF.
ANNUAL CASH FLOW DISRUPTION RISK MITIGATED BY DSRFS
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 SLA on all payers to support debt service and
replenish deal-specific DSRFs which are cash-funded to the IRS standard.
The timing of SLA levy and collections is satisfactory in that the levy is due
December 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 SLA collections, currently over
99% and over 97% through the recession.
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
1,900 employees in 2013.
The district estimates that Metropolitan St. Louis Sewer District has recently
invested approximately $200 million in its operations within the district, and
is the second highest taxpayer for 2014. Additionally, Penn National Gaming
Inc. purchased the casino in 2012 for approximately $610 million in an
all-cash transaction and announced it will invest approximately $61 million in
updating and rebranding the facility.
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
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
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
Karen Wagner, +1-212-908-0230
Jessalynn Moro, +1-202-908-0608
Elizabeth Fogerty, +1 212-908-0526
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