Fitch Affirms Denver West Metro District, CO's GO Bonds at 'A-'; Outlook Stable

AUSTIN, Texas--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'A-' rating on the following bonds of Denver West Metropolitan District, CO:

--$51.8 million in outstanding general obligation (GO) bonds.

Fitch has also withdrawn the district's Issuer Default Rating (IDR) due to a lack of operating risk.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an unlimited ad valorem tax levied against all taxable property within the district.

KEY RATING DRIVERS

The district's revenue base is narrow with stagnant growth prospects. Operations are minimal, reflecting the limited purpose of the district which was formed for the primary purpose of financing infrastructure improvements. The liability burden is high though remaining capital needs are limited.

Economic Resource Base

The district is located primarily in the city of Lakewood, approximately 10 miles west of downtown Denver. The district encompasses approximately 516 acres and serves a predominantly commercial tax base with a modest residential population of about 1,100.

Dedicated Revenue Stream

Growth prospects for tax revenues are stagnant absent policy action and the tax base is concentrated. However, the district's debt service tax rate is unlimited, providing significant credit strength. The unlimited nature of the tax provides significant cushion against potential tax base decline and helps offset concern about tax base volatility.

Long-Term Liability Burden

The overall debt burden is high in relation to the resource base and direct debt amortizes slowly. The district has no liabilities for retiree benefits.

Lack of Operating Risk

The district's operating responsibilities are minimal and are therefore not a significant credit factor.

RATING SENSITIVITIES

Tax Base Key Factor: Significant and sustained improvement in the district's tax base over time, accompanied by diversification, would improve revenue prospects and support higher rating consideration. The Stable Outlook reflects Fitch's expectation that this is unlikely during the current review period.

Reduced Liability Burden: A material reduction in the district's long-term liability burden could result in positive rating consideration.

CREDIT PROFILE

The district was organized in 1984 to provide infrastructure for commercial, retail, and residential development. It is located adjacent to Interstate Highway 70, which is the primary east/west route through the Denver MSA and the state. Major components of the Denver West development include a regional shopping mall and a 1.4 million-square foot office park. Other major properties include a hotel, two strip centers, owner-occupied office buildings, and three apartment complexes (about 750 total units). Retail and multifamily occupancy rates are consistently high; office occupancy rates are lower, but the district's developer anticipates improvement as the result of a recent marketing campaign.

The top 10 taxpayers account for a very high 55% of 2016 assessed valuation (AV). The top payer is Colorado Mills Mall at 22% of AV, and is owned by Simon Property Group (IDR 'A'/Stable). Prospects for increased taxpayer diversity are minimal given the small size and relative maturity of the district.

Dedicated Revenue Stream

Debt service is paid from an unlimited property tax. Therefore, Fitch uses AV as a proxy for revenues in its assessment of growth prospects. District taxable values exhibit compounded annual growth at a slower pace than inflation over the 10 years ended in 2015. Tax base growth prospects for the district remain stagnant, though the developer anticipates some redevelopment activity over the medium term. The rating recognizes the risk inherent in the narrow tax base dominated by the commercial real estate sector.

AV experienced a recessionary decline of 14.6% in fiscal years 2010-2012. However, tax rates are adjusted annually to ensure sufficient revenues for full GO bond repayment.

The district also levies an unlimited property tax for capital outlay and its minimal operations. District management has historically kept the total mill levy rate for operations and debt service at or below 35 mills in order to maintain competitive appeal; the total rate for 2016 is 35 mills.

Long-Term Liability Burden

The district's overall debt burden is high at 12% of market value, and is largely attributable to direct debt. The liability burden is a substantial 116% of personal income due to the very small residential component of the primarily commercial district. Fitch expects the burden to remain high given slow amortization of direct debt and anticipated overlapping debt issuance. The district has no near-term debt plans and does not provide pensions or other postemployment benefits.

Lack of Operating Risk

General fund expenditures are modest and consist primarily of capital outlay and transfers to Lena Gulch Metropolitan District (the operating district) pursuant to an intergovernmental agreement. The district and Lena Gulch share a board of directors and management team. Modest operating costs and capital expenditures can be adjusted during periods of economic stress. The district has no employees, as most services are contracted out.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.

Applicable Criteria

U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)

https://www.fitchratings.com/site/re/879478

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015826

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015826

Endorsement Policy

https://www.fitchratings.com/regulatory

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Fitch Ratings
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Shane Sellstrom
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Fitch Ratings, Inc.
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Austin, TX 78701
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or
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Email: [email protected]

Source: Fitch Ratings

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