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Fitch Upgrades Unified Govt of Wyandotte Co/Kansas City, KS Sub Lien Revs to 'A-'; Outlook Positive

January 23, 2014

NEW YORK --(BUSINESS WIRE)-- Fitch Ratings takes the following rating action on the Unified Government of Wyandotte County / Kansas City, Kansas : -- $122 million subordinate lien capital appreciation series 2010B bonds (redevelopment project area B) upgraded to 'A-'. The Rating Outlook is Positive. SECURITY The bonds are special limited obligations payable from a senior lien on sales and hotel taxes collected within Village West. KEY RATING DRIVERS REDUCED LEVERAGE DRIVES POSITIVE RATING ACTION: The upgrade to 'A-' reflects the ascension of the bonds to senior lien status, which has led to accelerated turbo redemption and reduced leverage of the revenue stream. OUTLOOK CONSIDERATIONS: The Positive Outlook reflects Fitch's expectation that conditions are favorable for the continued prepayment of the bonds resulting in payoff well in advance of maturity. PAYER CONCENTRATION: Pledged revenues generated within the Village West Redevelopment Area (Village West) are primarily derived from a highly concentrated base of retail establishments. ECONOMICALLY SENSITIVE REVENUES: Pledged revenues include inherently volatile sales and hotel taxes. Recent trends have been favorable; however, future variability may be amplified by reduction in the sales tax rate and the cap on the state portion of the sales tax. ADEQUATE COVERAGE: Pledged revenues, even assuming sizable annual declines, are adequate to retire all outstanding debt. COMPLEX REPAYMENT STRUCTURE: The outstanding bonds have a complex repayment structure, including a cap on certain sales tax receipts, a large zero coupon maturity, and turbo redemption features. POSITIVE ECONOMIC PROFILE: The economic profile of the Kansas City metropolitan statistical area (MSA) is positive, although key demographics for Wyandotte County are somewhat less attractive. RATING SENSITIVITIES TURBO REDEMPTION: The continued prepayment of principal from excess pledged revenues resulting in continued material reduced leverage of the revenue stream would likely lead to an upgrade. SECURITY MECHANICS Pledged revenues consist of state and local sales and compensating use tax revenues (retail sales tax), which accounted for 97% of total collections in 2012, and transient guest (hotel) tax revenues, which accounted for the remainder. The net retail sales tax totals 8.7115%, consisting of 6.15% from the state, 0.9365% from Wyandotte County , and 1.625% from the city. The state sales tax rate was increased by 1% to 6.3% effective July 1, 2010 , but the rate was scaled back to 6.15% after July 1, 2013 . The city sales tax was increased by 0.375% for a 10-year period to 1.625% effective July 1, 2010 . The net hotel tax of 7.84% has been in effect since Jan. 1, 2009 . The state has capped its total sales tax contribution at $144.5 million for repayment of the series 2010B bonds pursuant to the STAR Bonds Financing Act; however, 100% of all other tax sources are pledged through the term of the bonds. LARGE REGIONAL DRAW Village West was created in 1999 on a 400-acre tract of land located at the intersection of I-70 and I-435 about 15 miles west of downtown Kansas City . Development within Village West began in 2001, and currently all but approximately 10 acres is developed. Village West is anchored by Nebraska Furniture Mart (NFM), Cabela's, and Great Wolf Lodge (GWL). In addition to the anchor stores, there are 68 retail stores, 28 restaurants and eateries, five hotels with 445 total rooms, a 14-screen movie theater, a major league soccer stadium, and a minor league baseball stadium. The occupancy rate at Legends Outlets , the premium outlet mall at the site, remains strong at 93%. The Kansas Speedway , an outdoor water park, and a casino are located adjacent to but outside Village West???s borders. Bondholders do not directly benefit from the three aforementioned venues; however, the enterprises generate ancillary traffic within Village West. Proposed future phases at both the water park and the casino include restaurants, hotels, and retail space. The potential effect of these competing retail options on future pledged revenues is uncertain. POINT-OF-SALE CONCENTRATION The top five establishments located within Village West generated a concentrated 68% of total pledged revenues. (Pursuant to state law, sales breakdown can only be given in groupings of five.) The concentration is down from 91% in 2005; however, notable dilution from the current level is not anticipated. NFM, Cabela's, and GWL consistently have been in the top five of revenue generators since their openings. All the aforementioned enterprises own their space, and most have non-compete clauses pursuant to certain agreements. NFM, which opened within Village West in August 2003 and encompasses 450,000 square feet of retail space, sells furniture, floor coverings, appliances, and electronics products. Cabela's, which opened in August 2002 and encompasses 116,666 square feet of retail space, sells hunting, fishing, camping, and related outdoor merchandise. GWL, which opened in May 2003 , is a 281-room theme hotel with an attached indoor water park. The loss of or acute deterioration of revenues at any of the primary establishments would have a materially adverse impact on the repayment of the series 2010B bonds. Turbo redemption of the bonds, which began in late 2012, should generate margins of protection against potential variability in the pledged revenue stream. VARIABILITY IN REVENUE STREAM Pledged sales and hotel tax revenues recently have demonstrated strong growth, increasing over 14% annually in 2011 and 2012 before leveling off in 2013. The increase points to a rebounding economy, and underscores the cyclical nature of the revenues stream, which remains vulnerable to future economic downturns. The reduction of the sales tax rate from 6.3% to 6.15% in July 2013 and the cap on the total dollar amount of state sales tax contribution accentuate variability in revenue forecasts. COMPLEX REPAYMENT STRUCTURE The series 2010B bonds are on parity with $3.4 million in outstanding subordinate lien series 2004 bonds and $12.8 million in outstanding subordinate lien series 2012 bonds. The debt structure for the (now senior) subordinate lien obligations required that any excess pledged revenues after payment of scheduled subordinate lien debt service is then used to turbo outstanding principal of the series 2004 and 2010B bonds, on a pro-rata basis. An April 1, 2013 amendment changed the turbo feature whereby the 2010B bonds are being redeemed prior to the 2004 bonds. The 2012 serial bonds are not subject to early redemption. Fitch calculates that pledged revenues should be sufficient to repay the series 2010B bonds three years prior to their stated maturity of 2021 under a stress scenario where sales tax revenues decline by 8% annually. NO PLANS TO ISUUE PARITY DEBT Currently officials have no plans to issue additional debt on parity with the 2010B bonds. No additional bonds may be issued on a senior lien basis to the series 2010B bonds. The issuance of additional parity lien debt secured by the pledged revenues requires the approval of the state secretary of commerce and the state secretary of revenue. An additional bonds test further requires the projected pro forma weighted average life of each series of bonds (at the time of issuance of the additional bonds) to be no greater than six months more than the initial weighted average life of each series of bond (calculated at time of issuance of the 2010B bonds). Additional information is available at ' '. In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria this action was additionally informed by information from Creditscope and IHS Global Insight . Applicable Criteria and Related Research : --'Tax-Supported Rating Criteria,' dated Aug. 14, 2012 ; --'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 14, 2012 . Applicable Criteria and Related Research : Tax-Supported Rating Criteria U.S. Local Government Tax-Supported Rating Criteria Additional Disclosure Solicitation Status ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS . IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM '. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Ratings, Inc. Primary Analyst Karen Wagner , +1-212-908-0230 Director One State Street Plaza New York, NY 10004 or Secondary Analyst Arlene Bohner , +1-212-908-0554 Director or Committee Chairperson Amy Laksey, +1-212-908-0568 Managing Director or Media Relations Elizabeth Fogerty , +1-212-908-0526 Source: Fitch Ratings

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