The Rating Outlook is Stable.
The bonds are limited obligations payable solely from the revenues of a 1% sales tax on retail sales collected within the district, net of state fees, security fees and operating expenses, subject to annual appropriation.
KEY RATING DRIVERS
ECONOMICALLY SENSITIVE AND GEOGRAPHICALLY LIMITED TAX: The bonds are secured by economically sensitive sales tax revenues generated exclusively within one mall.
THIRD-PARTY RISK: Sales tax collections are reliant upon the continuous operation of the mall, which is owned by a single corporate entity.
PAYER CONCENTRATION: There is point-of-sale concentration with the top 10 payers accounting for roughly 40% of total 2013 revenues.
SINGLE SITE RISK: Pledged revenues are collected within a single mall, exposing bondholders to risk should the location suffer physical damage or close.
STRONG LOCAL ECONOMY: The mall is located in the city of
TURBO REDEMPTION FEATURE: The bond's mandatory prepayment (turbo) feature coupled with one bullet maturity provides payment flexibility.
ANNUAL APPROPRIATION: The pledge of revenue is subject to annual appropriation by the district; however, there is little incentive not to appropriate, as the revenues remain stranded if not appropriated.
CONTINUOUS MALL OPERATION: The rating is sensitive to the continued operation and upkeep of the mall, since a lack of maintenance or shuttering of the mall would materially impair sales tax collections.
ADEQUATE REVENUES: The rating is sensitive to the district's continued ability to generate adequate sales tax revenue from generic retail establishments located within a single mall.
LIMITED UPGRADE POTENTIAL: A rating upgrade is unlikely, given the district's extremely small geographic area, point-of-sale concentration, potential for future competition, and the reliance on a single third party to maintain and operate the property. All of these factors present significant risk that future sale tax revenues could decline materially and even permanently prior to full redemption.
The district encompasses a very small area, taking in substantially all of the West County Center mall, exclusive of the three anchor tenants (Nordstrom, Macy's, and JC Penney). The mall is advantageously located seven miles west of downtown
The district, which was created in
The anchor tenants do not generate pledged tax revenue, but they provide long-term stability to the mall, since both Macy's and JC Penney's own their respective property and Nordstrom owns its building and has a long-term ground lease agreement.
The majority of the remaining retail stores lease space under agreements with varying expirations dates. The mall has experienced some retail turn-over over the years; however, the changes have not adversely impacted sales tax revenues.
STRONG LOCAL ECONOMY
City residents display a superior socioeconomic profile with median household income at 260% of the 2011 state average. However, given the mall's regional draw, a portion of retail sales are most certainly derived from shoppers residing outside the city limits. Currently there are 146 retail stores or restaurants located within the district. There is point-of-sale concentration with the top 10 taxpayers accounting for 40% of total sales tax revenues in 2013.
The bonds are structured as one bullet maturity in 2029 with a special mandatory redemption feature whereby all excess sales tax revenue at the bottom of the flow of funds is required to redeem a portion of the bullet maturity. The structure provides important payment flexibility as the bonds are secured by an economically sensitive sales tax. The pace of special redemptions has accelerated since tax increment finance (TIF) bonds which had a claim on a portion of the sales tax were paid in full in 2013. The district redeemed
Pledged revenues for 2013 increased by 86% over the year prior, as expected. The TIF bonds that shared equally in the 1% sales tax were redeemed in 2013, resulting in a doubling of the allocated sales tax for the rated bonds from 1/2 of 1% to the full 1%.
Fitch analysis shows that if 2013 revenues are held flat and no further subordinate debt is issued, annual collections would be adequate to service required interest payments plus annually retire a portion of the bullet maturity to fully redeem the bonds by 2021, eight years prior to stated maturity date. Under a Fitch stress scenario, sales tax revenues could decline 9% annually beginning in 2014 and revenues plus the cash funded reserve would be adequate to retire the bonds by the stated maturity date.
MALL FUNDAMENTALS CURRENTLY GOOD
Mall fundamentals are currently good, but the highly concentrated sales tax base represents significant risk that pledged revenues could decline materially, and even permanently, prior to full redemption.
The mall was 99.6% occupied as of
The mall is owned by
There are five competing regional malls in the surrounding
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,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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