Fitch Affirms Mountain Village Metro District, CO's GO Bonds at 'A+'; Outlook Stable

Fitch Ratings affirms the following Mountain Village Metropolitan District, Colorado, (the district) general obligation (GO) bonds:

--$10.715 million unlimited tax bonds, series 2005 and 2006A at 'A+'.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the district, payable from an unlimited ad valorem tax.

KEY RATING DRIVERS

DISTRICT CONSOLIDATION: The district was consolidated with the Town of Mountain Village in 2007 (and shares common boundaries) and now functions only to service previously issued district debt. Because the district is controlled by the town and its tax rate is set by the town council, the town's credit profile is considered when evaluating the district's ability to service its debt.

STABLE FINANCIAL OPERATIONS: Town financial operations reflect healthy reserves and liquidity. Projected results for 2013 are positive, adding to the adequate financial cushion.

LARGE TAX BASE DECLINES; STABILIZATION EXPECTED: The town's position as a popular tourist destination has generated extensive development, as indicated by robust tax base growth of 70% from 2006 through 2011. However, taxable values dropped by 29% from 2011 through 2014 due to recessionary pressures on reassessments. Officials estimate flat to modest tax base gains in the next cycle (2016), as recent construction activity offsets any valuation weakness.

TOURISM DRIVEN ECONOMY: The town's small size and resort-based economy leaves it susceptible to downturns in the tourism sector. A significant portion of the town's revenues come from economically sensitive sales taxes. These risks are offset to a degree by the town's large financial reserves. Growing non-skiing tourist activity should add some stability to this revenue stream.

MANAGEABLE DEBT BURDEN: Combined town/district debt levels are modest relative to the town's tax base, with the overall debt burden at 1.44% of market value. Payout is rapid, contributing to high debt service carrying costs that are expected to decline substantially in the medium term.

RATING SENSITIVITIES

STABLE FINANCIAL PERFORMANCE: The rating is sensitive to shifts in fundamental credit characteristics, including deterioration of reserves and further assessed valuation (AV) weakness.

CREDIT PROFILE

Mountain Village encompasses the main village area of Telluride Ski Resort. In 2007, the district, the boundaries of which are coterminous with the town, was dissolved as part of a voter-approved consolidation plan and its assets and functions were turned over to the town. However, the district remains in existence to pay debt service on its outstanding GO bonds. The town sets the district's property tax rate each year and performs all of the district's former municipal functions.

IMPROVED FINANCIAL CUSHION

Unaudited fiscal 2013 operating results for the town indicate a strong net surplus of $2.8 million, boosting the general fund unrestricted balance to $5.7 million (62% of spending), well above the town's policy target level of 35% of spending. Operations in fiscal 2013 improved due to improved sales tax revenue growth, increased construction permitting, and conservative budgeting.

The positive results continue a trend of increasing reserves since fiscal 2010. Management has reduced expenditures through attrition vacancies, restructuring of the planning department, and reductions in operating subsidies to enterprise funds through the receipt of state and federal grants.

The fiscal 2014 budget was adopted with a manageable use of fund balance ($174,000) for a one-time infrastructure investment. Fitch believes that management has demonstrated a willingness to make necessary spending adjustments and should continue to maintain an adequate financial profile.

SHARP AV DECLINES; STABILIZATION EXPECTED

The district's tax base grew rapidly between fiscal years 2000 and 2010 with overall cumulative increase of 300%; the average annual increase was 12.8%. This growth was fueled by residential construction and appreciation; residences represent nearly 89% of values. AV growth slowed in 2011, then declined by 15% and 16% in 2012 and 2014, respectively, as the recession took its toll on existing home values.

Management reports that construction increased significantly in 2013 with permit values up 353% from 2012. A flat to modest AV increase is expected in the next reassessment cycle as recent construction is captured in AV, offsetting any lingering declines in existing property values.

SKI TOWN RELIANT ON TOURISM

With a permanent population of 1,320, the town is reliant upon tourism and accompanying development around Telluride for its economic well-being. During the middle years of the past decade, Mountain Village experienced intense development activity, issuing over $200 million of building permits in the peak year of 2006. Newly developed properties included hotels, condos, and second homes. During the recession, permit activity dropped precipitously, although management reports that nearly $68 million of permits were issued in 2013. Other economically sensitive indicators such as sales taxes and development fees have also shown recent improvement, with sales tax collections increasing by over 18% in 2013.

MANAGEABLE DEBT BURDEN

Debt levels are very high on a per capita basis but modest relative to the district's sizable tax base, with an overall debt-to-full value ratio of 1.44%. Principal amortization is rapid with 66% retired within 10 years. This pace contributes to relatively high debt service carrying costs of 21% of 2013 governmental spending. Annual debt service requirements decline by over 75% after 2017, providing future operating flexibility to the town. Officials indicate that current capital needs can be met with existing resources and there are no plans to issue additional bonds in the foreseeable future.

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 the 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=827526

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