Fitch Downgrades Prescott Valley MPC, Arizona Excise Tax Revs

2008-05-30 22:58:20 -

- Fitch has downgraded to 'A+' from 'AA-' the rating on the Prescott Valley Municipal Property Corporation municipal facility revenue bonds. This action affects $38.3 million in outstanding parity bonds. The Rating Outlook is Negative.

Fitch takes this action in response to a steep decline in transaction privilege tax (TPT) revenues in the Town of Prescott Valley, and an unanticipated increase in payments for debt associated with the recent construction of an events facility in the town. These payments will come from TPT (sales tax) revenues, which Fitch believes will contribute to the near-term financial stress that will be generated by the decline in TPT revenues due to the economic slowdown. Reserves remain quite high but have declined relative to expenditures and significant continued erosion could lead to further rating action.

Fitch also expresses concern regarding management oversight in the wake of an event of default reported by the trustee for the Yavapai County Industrial Development Authority (IDA) convention center facilities excise tax revenue bonds, series 2005. According to the trustee, funds required for the October 1, 2007 debt payment (including TPT revenues from the town) were not transferred to the trustee by the payment date. The trustee then drew upon the debt service reserve fund in the amount of approximately $1.17 million to make the required payment. The trustee reported these events in a letter to bondholders dated April 18, 2008. According to the trustee, sufficient funds were transferred for the April 1, 2008 debt service payment on the bonds. However, the debt service reserve fund has not yet been replenished. For more information on the IDA, please see the Fitch release dated May 30, 2008.

The town's monthly financial report for April 2008 indicates that total fiscal 2008 sales tax revenues through March are down 16% from the same period in fiscal 2007. Included in this total are a nearly 12% decline in retail sales tax receipts and a nearly 38% drop in construction sales tax revenues. Fitch believes this loss of revenues, largely a byproduct of the severe statewide housing construction slowdown, will pressure the town's finances over the near term. The stress will be exacerbated by the town's contractual obligation to contribute certain TPT revenues from a designated commercial area to support debt payments on the Yavapai County IDA series 2005 bonds. These TPT payments are required in the event net income from the facility and other pledged revenues are insufficient to make debt service payments on the bonds. The financial operating history of the facility and projections of both facility operations and retail activity in and around the facility suggest the town will be contributing TPT revenues from this designated area for the foreseeable future.

Prescott Valley is located roughly 90 miles northwest of Phoenix. The town has experienced explosive population growth in the past decade, increasing from less than 9,000 in 1990 to an estimated 38,000 this year. The primary economic sectors of the town include tourism, trade, services, and construction; however, a segment of the population commutes to nearby Prescott to work in its government, mining, and ranching economy.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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Steve Murray, 512-215-3729
Jose Acosta, 512-215-3726
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