TEXT - Fitch raises Unified Gov't of Wyandotte Cty/Kansas City

Wed Jan 30, 2013 2:39pm EST

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Jan 30 - Fitch Ratings takes the following rating action on the Unified
Government of Wyandotte County/Kansas City, Kansas:

--$167 million subordinate lien capital appreciation series 2010B bonds 
(redevelopment project area B) upgraded to 'BBB+' from 'BBB'.

The Rating Outlook is Positive.

SECURITY

The bonds are special limited obligations payable from a senior lien on sales 
and hotel taxes collected within Village West. 

SENSITIVITY/RATING DRIVERS

DELEVERAGING DRIVES POSITIVE RATING ACTION: The upgrade to 'BBB+' reflects the 
ascension of the bonds to senior lien status upon the recent early redemption of
the formerly senior series 2005 bonds. Conditions appear favorable for 
accelerated turbo redemption of bonds. The first turbo redemption occurred in 
December 2012, providing a cushion against potential future revenue declines.

PAYER CONCENTRATION: Pledged revenues generated within the Village West 
Redevelopment Area (Village West) are primarily derived from a highly 
concentrated base of retail establishments.

ECONOMICALLY SENSITIVE REVENUES: Pledged revenues include inherently volatile 
sales and hotel taxes. Recent trends have been favorable; however, future 
variability may be amplified by scheduled reductions in the sales tax rate and 
the cap on the state portion of the sales tax. 

ADEQUATE COVERAGE: Pledged revenues, even assuming modest annual declines, are 
adequate to retire all outstanding debt.

COMPLEX REPAYMENT STRUCTURE: The outstanding bonds have a complex repayment 
structure, including different lien levels, a cap on certain sales tax receipts,
a large zero coupon maturity, and turbo redemption features.

POSITIVE SOCIOECONOMIC PROFILE: The socioeconomic profile of the Kansas City 
metropolitan statistical area (MSA) is positive, although key demographics for 
Wyandotte County are somewhat less attractive.

WHAT COULD TRIGGER A RATING ACTION 

TURBO REDEMPTION: The prepayment of principal from excess pledged revenues 
resulting in a material deleveraging of the revenue stream would likely lead to 
an upgrade.

CREDIT PROFILE

SECURITY MECHANICS

Pledged revenues consist of state and local sales and compensating use tax 
revenues (retail sales tax), which accounted for 97% of total collections in 
2012, and transient guest (hotel) tax revenues, which accounted for the 
remainder. The net retail sales tax totals 8.8615%, consisting of 6.3% from the 
state, 0.9365% from Wyandotte County, and 1.625% from the city. 

The state sales tax rate was increased by 1% to 6.3% effective July 1, 2010; 
however, the rate is scheduled to be scaled back to 5.7% after July 1, 2013. The
city sales tax was increased by 0.375% for a 10-year period to 1.625% effective 
July 1, 2010. The net hotel tax of 7.84% has been in effect since Jan. 1, 2009. 

The state has capped its total sales tax contribution at $144.5 million for 
repayment of the series 2010B bonds pursuant to the STAR Bonds Financing Act; 
however, 100% of all other tax sources are pledged through the term of the 
bonds. 

LARGE REGIONAL DRAW

Village West was created in 1999 on a 400-acre tract of land located at the 
intersection of I-70 and I-435 about 15 miles west of downtown Kansas City. 
Development within Village West began in 2001, and currently all but nine acres 
is developed. Village West is anchored by Nebraska Furniture Mart (NFM), 
Cabela's, and Great Wolf Lodge (GWL). In addition to the anchor stores, there 
are 68 retail stores, 28 restaurants and eateries, five hotels with 445 total 
rooms, a 14-screen movie theater, a major league soccer stadium, and a minor 
league baseball stadium. 

The Kansas Speedway, an outdoor water park, and a casino are located adjacent to
but outside Village West's borders. Bondholders do not directly benefit from the
three aforementioned venues; however, the enterprises generate ancillary traffic
within Village West. Proposed future phases at both the water park and the 
casino include restaurants, hotels, and retail space. The potential effect of 
these competing retail options on future pledged revenues is uncertain. 

POINT-OF-SALE CONCENTRATION

The top five establishments located within Village West generated a concentrated
72% of total pledged revenues. The concentration is down from 91% in 2005; 
however, notable dilution from the current level is not anticipated. NFM, 
Cabela's, and GWL consistently have been in the top five of revenue generators 
since their openings. All the aforementioned enterprises own their space and 
most have non-compete clauses pursuant to certain agreements. Legends, the 
outlet mall at the site, has remained open while in receivership and was 
recently sold to a new owner at auction.

NFM opened within Village West in August 2003 and encompasses 450,000 square 
feet of retail space and sells furniture, floor coverings, appliances, and 
electronics products. Cabela's opened in August 2002 and encompasses 116,666 
square feet of retail space and sells hunting, fishing, camping, and related 
outdoor merchandise. GWL opened inMay 2003 and is a 281-room theme hotel with 
an attached indoor water park. 

The loss of or acute deterioration in retail activity at any of the primary 
establishments would have a materially adverse impact on the repayment of the 
series 2010B bonds. Turbo redemption of the bonds, which began late last year, 
will generate margins of protection against potential variability in the pledged
revenue stream. 

VARIABILITY IN REVENUE STREAM

Pledged sales and hotel tax revenues recently have demonstrated strong growth, 
increasing over 14% annually in each of the past two years. Such growth points 
to a rebounding economy, and underscores the cyclical nature of the nature 
stream, which remains vulnerable to future economic downturns. The reduction of 
the sales tax rate from 6.3% to 5.7% scheduled to take effect July 2013 and the 
cap on the total dollar amount of state sales tax contribution accentuate 
variability in revenue forecasts. 

COMPLEX REPAYMENT STRUCTURE

The series 2010B bonds are on parity with $3.78 million in outstanding 
subordinate lien series 2004 bonds and $12.785 million in outstanding 
subordinate lien series 2012 bonds. The 2nd lien series 2005 bonds, which held a
prior lien on the revenue stream, have been retired and that lien is closed. 

The debt structure for the (now senior) lien obligations requires that any 
excess pledged revenues after payment of scheduled parity debt service is then 
used to turbo outstanding principal of the series 2004 and 2010B bonds, on a 
pro-rata basis. The 2012 serial bonds are not subject to early redemption. 

Fitch calculates that pledged revenues should be sufficient to repay the series 
2010B bonds by their stated maturity of 2021 under a stress scenario where sales
tax revenues decline by 8% annually. 

ADDITIONAL BONDING PLANS CREDIT NEUTRAL

Fitch views officials' consideration of issuing $10 million of parity debt later
this year as a credit neutral as overall leverage will continue to decline. No 
additional bonds may be issued on a senior lien basis to the series 2010B bonds.


The issuance of additional parity lien debt secured by the pledged revenues 
requires the approval of both the state secretary of commerce and the state 
secretary of revenue. An additional bonds test further requires the projected 
pro forma weighted average life of each series of bonds (at the time of issuance
of the additional bonds) to be no greater than six months more than the initial 
weighted average life of each series of bond (calculated at time of issuance of 
the 2010B bonds).
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