News Column

Fitch Rates Beaver Creek Metro Dist, CO's GO Bonds 'A+'; Outlook Stable

June 19, 2014

AUSTIN, Texas--(BUSINESS WIRE)-- Fitch Ratings assigns an 'A+' rating to the following Beaver CreekMetropolitan District (the district), CO general obligation (GO) bonds:

--$5.3 million GO bonds, series 2014.

The bonds are expected to price on a negotiated basis during the week of June 23. Proceeds will be used to acquire a restrictive covenant on land within the district.

Fitch also assigns an 'A+' rating to the district's outstanding $2.1 million series 2009 GO refunding bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by an unlimited annual property tax levy.

RATING DRIVERS

RECREATION & TOURIST ECONOMY: The district is subject to the inherent volatility of recreation and tourist based economies. Very high end second homes comprise the majority of the district's housing stock and tax base, indicative of an affluent seasonal population.

LARGE RESERVES; LIMITED REVENUE FLEXIBILITY: Prudent financial management has resulted in large financial reserves and ample liquidity. However, revenue flexibility is limited as the district is at its operating mill levy cap and voter approval is required for any increase in the mill rate.

MODERATE DEBT; LIMITED CAPITAL NEEDS: The overall debt burden is moderate and major capital needs for this mature community are limited. Principal amortization is below average, but debt service is level and the district does not have any pension or OPEB obligations.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to material changes in fundamental credit characteristics, including the district's strong financial management practices. The district's history of reserve adequacy and sound financial management practices indicates expected rating stability.

CREDIT PROFILE

The district is a master planned gated community located 10 miles west of Vail, 114 miles west of Denver, and adjacent to the town of Avon. The district is part of the Beaver Creek-Vail resort area, a natural tourist draw year-round although visitation is focused in the winter and summer. The district's year-round population is very small, estimated at 300, with seasonal peaks at 7,500 - 10,000 during the summer and winter. The district has about 3,000 residential units, split about evenly between townhomes/condominiums and single family homes.

The district was established in 1978 to provide water, fire protection, drainage, cable television, and recreational services for its 1,437 acres. District services are governed by a service plan as required by state law and are approved by Eagle County. The service plan was amended in 1998 to include transportation and traffic control.

The district is governed by five-member board and has one full-time employee (general manager). The board is made up of non-developer property owners and residents, reflecting its mature status. District services are provided by contractual agreements with other municipalities. Numerous recreational facilities within the district, including an ice rink, art museum, and performing arts complex, are owned and operated by the developer, Vail Corp. (which also owns and operates the Beaver Creek Ski Resort).

CONCENTRATED TAX BASE; VACATION HOMES DOMINATE

Vail Corp. is the district's largest taxpayer, comprising for 11% of AV. The top 10 taxpayers account for a moderately high 19% of AV, the majority of which are hotels and condominiums. Up to 75% of the district's 3,000 residential units serve as second or vacation homes. Single family homes account for about one-half of the housing stock and average $5 million in value. Based on peak seasonal population, market value per capita is very high at over $400,000.

RECESSIONARY AV LOSSES

The district's AV has not rebounded from a 21% loss in 2012 that was fueled by mostly residential reassessment declines. Relative to other mountain resort districts, Beaver Creek's recessionary loss compares favorably. However, the district's built out status makes it reliant on existing properties to maintain property values. District management projects AV growth to be flat or modest in the next reassessment year in 2016. Fitch considers this expectation reasonably conservative based on generally improving economic conditions.

POSITIVE FINANCIAL POSITION

The district's financial reserves are large and are typically well in excess of its formal 30 day fund balance. In 2013, the district posted a net operating deficit equal to 5.8% of spending due to a transfer to the capital projects fund. Despite the drawdown, the unrestricted fund balance totaled $4.9 million or a sizeable 134% of spending. Liquidity was also ample, totaling 1.5 years of operating expenditures in 2013.

General fund revenues are concentrated with property taxes accounting for 87% of the total in 2014. The operating mill levy is at its cap of 8.715 mills, which prevented the district from increasing its mill rate to offset recessionary AV losses in recent years. Voter authorization is required to increase the operating mill levy and was last approved in 2005. The district's total mill levy is modest at 20.7 and compares favorably with other area metro districts.

The amended 2014 budget includes a $800,000 use of fund balance, due mostly to $700,000 for the site acquisition for a new fire station. The district expects to reimburse the general fund with proceeds from the sale of its existing fire station property. Due to its central location in the village core, the appraised value of the existing fire station is reportedly in excess of the entire project cost of the new fire station ($6.5 million), including site acquisition.

MANAGEABLE DEBT PROFILE

The district's overall debt is affordable. Debt relative to market value is very modest at under 1% due to the affluent nature of the tax base. Based on the estimated summer or winter seasonal population, overall debt per capita is moderate at $3,620. Including the current offering, the principal pay out rate is below average at 42% in 10 years.

The current offering will finance a restrictive covenant on 490 acres of land owned by Vail Corp. This purchase represents the settlement of litigation between the district and Vail Corp. which sought to develop its property on Beaver Creek Mountain. The permanent restrictive covenant allows the district to protect the views of residents (who approved the bond authorization by a high 82%).

Debt service is level after 2018 and will not require an increase in the mill levy. Future debt plans are limited to the $6.5 million fire station project, which will be financed with a two-year bank loan (and repaid with proceeds of the sale of the current fire station property). Total carrying costs are modest at 8.1% of 2013 spending, aided by the absence of pension and OPEB costs.

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, and 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=835474

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

Jose Acosta, +1-512-215-3726

Senior Director

Fitch Ratings, Inc.

111 Congress Avenue, Suite 2010

Austin, TX 787801

or

Secondary Analyst

Shane Sellstrom, +1-512-215-3727

Committee Chairperson

or

Senior Director

Steve Murray, +1-512-215-3729

or

Media Relations

Elizabeth Fogerty, +1-212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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