Fitch Affirms Reno-Sparks IDR at 'BB+'; Outlook Stable

AUSTIN, Texas--(BUSINESS WIRE)-- Fitch Ratings has affirmed the Reno-Sparks Indian Colony, NV's (RSIC) long-term Issuer Default Rating (IDR) at 'BB+'.

The Rating Outlook is Stable.

KEY RATING DRIVERS

CONTINUING DIVERSIFICATION; IMPROVED FINANCES: Growth in RSIC's general fund reserves reflects the colony's successful ongoing diversification from tobacco sales and its prudent cost management.

ECONOMICALLY SENSITIVE REVENUES REMAIN: RSIC revenues remain economically sensitive and highly concentrated. Top sales and excise taxpayers include Wal-Mart and several car dealerships. Although the Reno economy shows signs of improvement, it remains vulnerable to economic downturns due to its reliance on the leisure and tourism industries.

MANAGEABLE DEBT SERVICE: The colony's debt service costs place a moderate burden on the general fund budget.

RATING SENSITIVITIES

TAXBASE EXPANSION; STRONG FINANCES: Expansion and diversification of the colony's tax base and ongoing financial flexibility could lead to positive rating action in the medium term.

CREDIT PROFILE

The RSIC is a federally recognized tribe with a reservation consisting of noncontiguous trust land totaling over 2,000 acres in and around downtown Reno, Nevada, within Washoe County (the county). The tribe has approximately 1,123 enrolled members and employs approximately 332 people, 44% of whom are tribal members. The tribe is governed by an eight-member tribal council and a tribal chairman, all elected to four-year staggered terms.

DEPENDENCE ON SALES TAX REVENUES

The tribe's authority to levy and collect sales and excise taxes on businesses operating on tribal trust land is generated from an agreement with the state signed in 1991. The agreement stipulates that the tribe must charge a rate at least equivalent to the state's sales and excise tax rate on retail sales activity on tribal trust land.

DIVERSIFYING TAX BASE

Fitch values the colony's increasing diversity and path toward tax base expansion. However, the rating continues to reflect vulnerability to commercial concentration, with economically sensitive sales tax revenues.

With the opening of WalMart in 2010, the colony's non-tobacco business contributes the majority of general fund revenues. Now the top Taxpayer, Wal-Mart (rated 'AA', Stable Outlook by Fitch) contributed a significant portion of unaudited fiscal 2014 sales tax receipts. The majority of remaining non-tobacco sales taxes are generated from car dealerships including Mercedes, Acura, Infiniti and Carmax.

The colony continues its diversification efforts. Under an agreement with the state RSIC will obtain six acres of commercially suitable land from the state adjacent to its Wal-Mart site in 2015 in exchange for a restitution center currently under construction and financed by the colony with an $8 million loan. Debt service on the loan will be repaid from Walmart taxable sales. The colony's agreement with the state also provides for revenue sharing with the Washoe County School District.

GENERAL FUND RESERVE GROWTH

The colony completed fiscal 2013 with unrestricted general fund reserves representing 95% of spending. RSIC's improved liquidity over the past several years reflects the growth of nontobacco sales and excise tax revenues at a rate outstripping modest cost increases in the colony's budget.

RSIC reports further additions to fiscal 2014 reserves based on unaudited results. The colony's audits are issued within nine months following fiscal year end according to standards applicable to the colony as a recipient of federal grants. Favorable fiscal 2014 general fund performance results from sales tax growth and increased indirect cost recoveries provided to the general fund from the colony's health care clinic, opened in the current facility in 2008. Fiscal 2013 marked the second year of self-supported debt service from the colony's health clinic operations. Improved clinic financial performance reflects growing volumes and an increase in Medicaid reimbursements.

RSIC's general fund service spending is focused on tribal police, seniors, recreation, administration, public works and education. The colony has proven consistently conservative on budgeting expenditures but with a revenue base concentrated in sales taxes from a limited number of payers, remains vulnerable to budget shocks. Robust reserves help to mitigate this risk.

GROWING DEBT PROFILE; MANAGEABLE CARRYING COSTS

Outstanding debt of $26.3 million includes $12.1 million of outstanding 2006 fixed rated bonds supported by a letter of credit (LOC) provided by U.S. Bank, National Association and an $8 million U.S. Bank term loan (not rated by Fitch).

The LOC supporting the series 2006 bonds was auto-renewed and expires in June 29, 2016. If the LOC expires without substitution, a mandatory tender is triggered. At that point the bonds become bank bonds and the terms of the indenture specify that the RSIC must pay the bonds in full within 36 hours or pay a rate to the bank of 5% above prime until the bonds are paid in full. Ongoing payments required under a bank bond scenario would add some stress to the RSIC's financial profile.

Fiscal 2013 general fund debt service equal to 7.9% of general fund spending declined from 15.9% in the prior year reflecting the health clinic's funding of series 2006 debt. Fitch estimates the colony's general fund debt service to increase to a moderate 10.4% this year reflecting amortization of the U.S. Bank term loan. The increased debt service payments will be repaid from gross sales tax revenues generated by Wal-Mart.

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, National Association of Realtors.

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985251

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150522005785/en/

Fitch Ratings
Primary Analyst
Rebecca Meyer, CFA, CPA
Director
+1-512-215-3733
Fitch Ratings, Inc.
111 Congress Ave. Ste. 2010
Austin, TX 78701
or
Secondary Analyst
Steve Murray
Senior Director
+1-512-215-3729
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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