Fitch Affirms Park Creek Metro District, CO's Senior Limited Tax Bonds at 'BBB'

Fitch Ratings has affirmed its 'BBB' rating on the following bonds for Park Creek Metropolitan District, Colorado (the district):

-- $186 million senior limited property tax supported revenue bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from a senior lien on certain payments received pursuant to an interlocal agreement and derived from the levy of a limited ad valorem tax within the Westerly Creek Metropolitan District (WCMD).

KEY RATING DRIVERS

ADEQUATE DEBT SERVICE COVERAGE: Senior debt service coverage is forecast to be thin albeit sufficient at 1.31 times (x) in fiscal 2015. Fitch expects coverage to improve over time with the development of the tax base.

WEAK DEBT PROFILE: Debt ratios are very high including subordinate obligations not rated by Fitch and amortization is slow. This profile is characteristic of the district's single development purpose.

STRATEGIC LOCATION: The Stapleton service area is located between downtown Denver and the Denver International Airport. The district's diverse development includes sizeable retail and industrial sectors as well as growing residential investments.

ADVANCED URBAN DEVELOPMENT: The service area has attained an advanced level of development and only a moderate amount of infrastructure costs remain for the near to medium term.

AUSPICIOUS GROWTH TRENDS: Stapleton represents Denver's only remaining large tract of developable land that includes a residential component. The number of residential units under construction has accelerated in recent years.

RATING SENSITIVITIES

IMPROVING TAX BASE TRENDS: The district's property tax is at the maximum rate. Assessed valuation (AV) growth forecast by the district for fiscals 2016 and 2017, based largely on development and construction underway, is important to rating stability given already diminished coverage levels. Material deviation from this growth forecast could pressure financial operations and debt service coverage.

CREDIT PROFILE

The district was created for the purpose of assisting in the financing and construction of infrastructure improvements serving the former Stapleton International Airport in Denver. WCMD was created simultaneously to provide property tax and other revenue to the district (pursuant to an interlocal agreement) in exchange for completion of infrastructure improvements by the district.

LARGE AND DIVERSE DENVER AREA DEVELOPMENT

The service area of the district and WCMD is ideally located in close proximity to downtown Denver, major transportation corridors, and the Denver International Airport. The development plan creates a mixed-use community that at full build-out is projected to include 12,000 housing units, 13 million square feet of commercial and retail space, and 1,100 acres of open space and parks on about 4,000 total acres.

Development on the first 2,086 of 2,935 projected developable acres is now in its fifth phase, with 80% of the planned 7,300 single-family residential units completed. A regional shopping center and other retail are also in place, with industrial space built and occupied as well. Office construction in the district has lagged other sectors.

Housing offerings in Stapleton are varied, with home prices ranging from $175,000 to $800,000. The 2014 average price of $440,000 reflects the generally affluent nature of residents.

The district's AV is concentrated but the level of concentration is trending down favorably. The top 10 taxpayers representing 23% of fiscal 2014 total values, down from 27% in fiscal 2013. These taxpayers represent a mix of commercial and industrial properties.

ADVANCED STAGE OF URBAN DEVELOPMENT

Over $600 million in infrastructure has been put in place to date, comprising the bulk of such needs for full development. Funding sources include district borrowing, tax increment financing (TIF) bonds issued by the Denver Urban Renewal Authority (rated 'A-' by Fitch with a Stable Outlook), and excess TIF revenues.

No new money debt is anticipated. However, the district's practice of refunding outstanding subordinate lien debt with senior lien bonds may limit prospects for coverage growth over the long term. The district's additional bonds test for senior bonds requires that 1.25x coverage be met using historical AV for the past two years, which Fitch views as adequate.

ASSESSED VALUE GAINS IMPROVE COVERAGE

The AV of WCMD, the taxing district, increased at a compound annual growth rate (CAGR) of 5.6% from fiscal 2008 to fiscal 2015, with only one decline (8.2%) due to reappraisal loss in fiscal 2012. Growth of 8.5% in fiscal 2013 and 11.3% in fiscal 2014 reflected new construction and reappraisal gains. AV grew by a modest 1.5% for fiscal 2015, a non-reassessment year, as several large commercial projects were completed following certification of the tax roll.

The decline in AV for fiscal 2012 decreased senior bond coverage to 1.20x from 1.46x the prior year. However, the rebound in AV increased coverage to 1.31x for fiscal 2015. Maximum annual debt service (MADS) coverage using fiscal 2015 pledged revenue is adequate at 1.31x.

TAX BASE GROWTH PROJECTIONS SUPPORTED BY DEVELOPMENT ACTIVITY

The district projects strong tax base growth of 18% for fiscal 2016, capturing the recent completion of two hotels, a multifamily housing complex, and a senior housing facility, as well as expected reappraisal gains. Management's fiscal 2017 projection of 8% AV growth from new construction increases senior bond coverage to 1.7x.

Fitch views these projections as somewhat aggressive. Nevertheless, residential and commercial construction in the district's service area has accelerated significantly in recent years. Construction reached a low of 190 homes built in 2009, improving to 677 in 2013. Additionally, the developer reports that commercial and multi-family construction has reached an unprecedented pace for the district. Management's projections for reappraisal are consistent with regional trends.

FITCH STRESS ANALYSIS

Fitch's stress tests show senior lien coverage remaining thin but above 1.0x assuming sharply reduced AV and development activity. Under such stress scenarios, the district's subordinate lien debt would rely on developer advances for repayment.

In the event of default on any subordinate bonds, there is no acceleration of senior debt or other adverse effects to senior bondholders.

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=980513

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