Fitch Maintains Arizona Sports and Tourism Authority Revs on Rating Watch Negative

Fitch Ratings maintains the following Arizona Sports and Tourism Authority (the authority) bonds on Rating Watch Negative:

--$265.5 million senior lien revenue bonds, series 2007A and 2012A rated 'A';

--$12.5 million subordinate lien revenue bonds, series 2013 rated 'BBB+'.

SECURITY

The senior lien bonds are secured by a first lien on pledged revenues, which consist of a countywide car rental and hotel occupancy tax and facility-related taxes and revenues. The subordinate lien bonds are secured by a subordinate lien on pledged revenues after payment of statutory tourism promotion contributions, indexed 5% per year from a June 2001 base amount of $4 million. There is no debt service reserve fund for the senior bonds, but there is a fully funded debt service reserve fund for the subordinate bonds equal to maximum annual debt service (MADS).

KEY RATING DRIVERS

COURT RULING CREATES UNCERTAINTY: The Negative Watch indicates concern over the potential interruption or cessation of car rental tax revenues, which represent approximately 30% of a narrow and economically sensitive pledged revenue stream.

APPEAL OF COURT RULING: This rating action incorporates Fitch's understanding that the authority and the Arizona Department of Revenue (ADOR) as co-defendant will appeal the court ruling should the court deny the Defendants' motions for reconsideration and uphold its June 16 ruling. The appeal process could extend over several years.

ONGOING TAX COLLECTIONS: The current rating action also assumes that the authority will continue to collect car rental tax revenues during the appeal process.

RATING SENSITIVITIES

FAVORABLE RESOLUTION OF LITIGATION: Final resolution of litigation pertaining to the legality of pledged revenues in favor of the authority would likely result in removing the Negative Watch.

ELIMINATION OF PLEDGED REVENUE: Conversely, resolution that eliminates the car rental tax from pledged revenue, without compensating action by the state of Arizona legislature to replace it with a revenue stream sufficient to satisfactorily cover debt service, could result in ratings dropping to below investment-grade levels.

INTERRUPTION OF TAX REVENUES: The rating would be adversely affected by any interruption of car rental tax collections during the appeal process without compensating action to replace it. A requirement to reimburse taxpayers for previously collected taxes would heighten negative rating pressure.

Credit Profile

On June 16, 2014, the Superior Court of Arizona Maricopa County issued an Under Advisement Ruling stating that because the car rental tax relates to the use and operation of vehicles on the highways and streets of the state, proceeds can only be used for public highways or streets as set forth in the Arizona constitution.

A county-wide lodging tax makes up the balance of the authority's tourism tax revenues, together comprising about 60% of fiscal 2013 pledged revenues. The other major revenue source - facility revenue - is composed of certain state income taxes from the Arizona Cardinal professional football operations, sales taxes on retail, restaurants and events, and other facility revenues (e.g. payments from conventions, lease and rental revenues, admissions, and concessions).

Fiscal 2014 revenues cover maximum annual debt service (MADS) in fiscal 2031 at 1.79x. Excluding car rental tax revenues, MADS coverage declines to 1.24x, but reliance on facility revenue for debt service in lieu of the car rental tax revenues would deplete monies otherwise required for stadium operations and as a very narrow base would represent a weaker revenue source.

The court is expected to rule on cross motions for reconsideration of its June 16th ruling by the middle of January 2015. The court's final judgment will follow within three to six months, during which time determinations will be made as to the form of judgment and collection of the car rental tax during appeals. Should the initial ruling be upheld, the authority and ADOR have 30 days to appeal the ruling and judgment to the State Court of Appeals following the court's final ruling. Fitch will continue to monitor the litigation as it proceeds. Further commentary on the authority's general credit characteristics can be found in Fitch's Feb. 4, 2014 press release, available at www.fitchratings.com.

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);

--'Fitch Affirms Arizona Sports and Tourism Authority Sr Revs 'A'/Sub. Revs 'BBB+'; Outlook Stable' (Feb. 4, 2014).

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=956375

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