TEXT-Fitch affirms Washington Convention & Sport Auth revs
Sept 24 - Fitch Ratings affirms the 'A+' rating on the following Washington Convention and Sports Authority (WCSA or the authority) senior lien dedicated tax revenue bonds: --$666.525 million outstanding senior lien dedicated tax revenue bonds, series 2007A, 2010A, 2010B, 2010C. The Rating Outlook is Stable. SECURITY Senior lien bonds are secured by dedicated tax receipts collected by the district and transferred to the authority. Dedicated taxes consist of portions of the hotel and restaurant/rental car sales taxes. KEY RATING DRIVERS DEDICATED TAX PLEDGE: The 'A+' rating reflects the sound performance of pledged dedicated tax revenues, consisting of portions of the sales and use tax levied district-wide on hotel rooms, restaurant meals, on-premises alcoholic beverage consumption, and automobile rental charges. Dedicated tax revenues are segregated and flow directly to a lockbox account. ADDITIONAL RESOURCES PLEDGED: In addition to the presence of standard debt service reserve funds, significant additional reserves are pledged to bondholders. Further, security is provided through a provision requiring the mayor of the district to impose a surtax on the hotel sales and use tax if the sufficiency analysis performed by the district's auditor prior to the ensuing fiscal year indicates a shortfall in revenues versus projected expenditures. SATISFACTORY LEGAL PROVISIONS: Legal provisions are adequate, though springing amendments to the master trust agreement designed to accommodate TIF revenues pledged to the series 2010A and 2010B bonds, as well as expected federal subsidy payments, will somewhat dilute the 1.35 times (x) additional bonds test. Nonetheless, Fitch expects further leveraging to be limited and coverage will remain satisfactory. SOUND FUTURE FOR TOURISM: The district service area is strong, and Fitch believes the long-term prospects for conventions and tourism are sound. CREDIT PROFILE The 'A+' rating reflects the strong overall performance of pledged dedicated tax revenues, which consist of a 4.45% sales and use tax on hotel rooms and a 1% sales and use tax on restaurant meals, on-premises alcoholic beverage consumption, and automobile rental charges district-wide. Also factored into the rating are sound net debt service coverage levels (although bondholders have a gross lien on pledged revenues), the strong District of Columbia tourism market, expectations of limited future debt issuance, and adequate legal provisions. Bond proceeds financed the authority's participation in the development of a convention center hotel, expected to be open in April 2014, and interest is capitalized through the construction period. The bonds are secured by a senior lien on dedicated taxes, which are segregated from those of the district through a lockbox collection mechanism. Although the various series of bonds have additional sources of revenue, including developer loan payments and tax increment revenues, that are expected be used to pay debt service, the dedicated tax is the basis of the rating. Additional security is provided through a provision which requires the mayor of the district to impose a surtax on the hotel sales and use tax if a sufficiency analysis performed by the district's auditor prior to the ensuing fiscal year indicates a shortfall in authority revenues as compared with projected authority expenditures. In addition to a standard debt service reserve fund for all series, there are required operating and marketing reserves and capital renewal and replacement reserves, totaling $69.1 million as of Sept. 30, 2011. Fitch notes that WCSA's board of directors will review reserve maximum levels in 2014. Dedicated tax revenues in excess of expenses and maximum reserve and capital fund requirements may be released to the district's general fund per the directive of the WCSA's board of directors, though this is not expected in the near term. Additional senior lien bonds are permitted, provided a historical 1.35x ABT is met. Springing amendments included in the third supplemental indenture to accommodate TIF revenues pledged to the series 2010A and 2010B bonds, as well as expected federal subsidy payments, will somewhat dilute the ABT but concern is mitigated by the fact that revenue performance has been strong and additional contemplated issuance is limited. Debt service coverage of outstanding bonds from dedicated tax revenues was strong at 2.7x in fiscal 2011. Fiscal 2011 revenues provide 1.8x coverage of maximum annual debt service (in 2030). Additionally pledged revenues have not been incorporated in Fitch's analysis. Dedicated tax revenues demonstrate solid and consistent growth, increasing an average of 5.7% annually over the past ten years. The only reported year-over-year decline in revenues occurred in 2002, with a 3.5% drop in tax revenues that can be attributed largely to the events of Sept. 11, 2001 and subsequent terror concerns. Performance during the recession was relatively benign, with fiscal 2009 revenues flat to 2008, followed by 2.9% growth in fiscal 2010 and 4.1% growth in fiscal 2011. Hotel tax revenues alone, which constitute over two-thirds of dedicated revenues, have historically exhibited more volatility, declining 9.6% in fiscal 2002 and increasing by a robust 27.1% in fiscal 2005. Fiscal 2009 hotel tax revenues decline by 0.4% in fiscal 2009 and .02% in fiscal 2010 before rebounding 5.4% in fiscal 2011. Fitch expects the district's long-term prospects for convention and tourism activity will remain sound given its position as the center of federal government as well as an international tourist attraction. It is expected that the development of the convention center hotel should serve to bolster bookings at the center going forward as other lodging options are some distance away from the center.
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