Sept 6 - Fitch Ratings has affirmed the following Gravois Bluffs
Transportation Development District (Fenton, MO) bonds at 'BBB':
--$17.69 million transportation sales tax revenue bonds, series 2007.
The Rating Outlook is Stable.
The bonds are limited obligations payable solely from the net revenues of a 1%
tax on retail sales collected within the district. However, 50% of the collected
revenues are allocated to the Fenton Gravois Bluff tax increment finance
district (TIF district) until the earlier of 1) no TIF debt is outstanding or 2)
the expiration of the TIF district in October 2021.
The pledge of the sales tax is subject to annual appropriation by the district.
The bonds are also secured by a cash-funded debt service reserve totaling $2.049
KEY RATING DRIVERS
RISK OF NON-APPROPRIATION IS MINIMAL: The sales tax revenues securing the bonds
are subject to annual appropriation by the district; however, there is little
incentive not to appropriate as the revenues remain stranded if not
DISTRICT LIMITED IN SCOPE AND SIZE: The district consists of 80 stores
encompassing an extremely small 275 acres. There is point-of-sale concentration
with the top 10 sales tax payers accounting for 73% of total 2011 sales tax
PARITY OR SUBORDINATED DEBT RISK: The bonds benefit from a turbo feature, which
current projections show will allow for total retirement five years in advance
of final maturity. Issuance of parity or junior lien debt, while not currently
anticipated, would alter those projections and could materially affect bond
CONCENTRATED, LIMITED PURPOSE DISTRICT
The district encompasses a 0.43 square mile area advantageously located
proximate to the intersection of highway 141 and highway 30 roughly 20 miles
southwest of downtown St. Louis. The district board of directors consists of
five members, all of whom are associated with the developer, and two advisory
members, the city of Fenton finance director, and a MO DOT representative.
The district serves as one retail corridor of the city of Fenton, which is an
affluent community with per capita income levels at 129% of the state average.
The district is likely drawing customers from greater than just the city limits;
however, conversely city residents are not shopping solely within the district.
Currently there are 126 occupied retail establishments located within the
district, consisting of several anchor stores including Lowe's, Wal-Mart,
Kohl's, Sears and Target and supplemented by numerous small generic businesses.
The St. Louis metropolitan region is saturated with identical and similar store
competitors thus there is no inherent competitive advantage.
There is point-of-sale concentration with the top 10 sales tax payers accounting
for 73% of total fiscal 2011 sales tax revenues, heavily weighted towards the
top five payers. There is non-impairment language whereby the district cannot
repeal or amend its tax rate if such action would impair the district's ability
to repay the bonds.
DEBT STRUCTURE PROVIDES FLEXIBILITY
The bonds are structured with a 2032 bullet maturity with a special mandatory
redemption feature whereby all excess revenues must redeem the bullet maturity.
This structure provides payment flexibility for the district as the bonds are
secured by historically volatile sales tax revenues.
The district projects that the 2032 maturity will be fully retired by 2023,
assuming the district receives 100% of the sales tax revenues beginning 2017
(following estimated retirement of TIF bonds in 2016). Fitch stress tests show
this projection to be reasonable, assuming no growth in sales tax revenues from
Severe stress tests that include one year of 20% declines followed by two years
of 10% declines and maintenance of that level thereafter still show the bonds
can be retired by 2027, well in advance of the 2032 maturity. However, given the
extremely small geographic area, point-of-sale concentration, incongruent lease
terms of tenants to the final maturity of the bonds and the presence of abundant
local competitors, there is significant risk of future sales tax revenues
declining materially and permanently.
ADDITIONAL AND SUBORDINATED DEBT RISK
The additional bonds test is liberal at either 1) historical net pledged sales
tax revenues at least 1.4x pro forma debt service in that year or 2) historical
net pledged sales tax revenues at least 1.4x pro forma debt service in that year
and projected pledged sales tax revenues for each year at least 1.4x pro forma
debt service for each year. Fitch stress tests project that leveraging up to the
ABT would not endanger timely bond repayment by final maturity but would
materially extend the timeframe beyond what is currently expected.
Furthermore, the district may issue subordinate debt without restriction. As a
potential risk, the junior bonds could effectively become senior-in-time to the
outstanding 2032 bullet maturity. Excess funds that would otherwise be used to
trim the size of the senior bullet payments (and thus make final bullet payment
manageable) would be funneled off to pay junior debt service. However, the risk
is limited by the district's narrow scope and lack of further infrastructure