NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA' rating to the following Indianapolis Local Public Improvement Bond Bank, IN (the bond bank) revenue bonds:
--$44.28 million bonds, series 2013F.
The bonds are scheduled for negotiated sale the week of May 13. Proceeds will be used to refund outstanding series 2002G bonds and to finance various capital projects.
In addition, Fitch affirms the 'AA' rating on the following bond bank bonds:
--$16 million outstanding bonds, series 1992D;
--$127 million accreted value outstanding capital appreciation bonds, series 1999E;
--$146 million outstanding refunding bonds;
--$5 million outstanding taxable bonds, series 2009C.
The Rating Outlook is Stable.
KEY RATING DRIVERS:
IMPROVED COVERAGE: Strong coverage from tax increment revenues has improved as a result of continued growth in the City of Indianapolis-Marion County's (the city) downtown tax increment district, as well as expansion of the boundaries of the district.
MORAL OBLIGATION PLEDGE: The moral obligation pledge of the city (rated 'AAA' by Fitch) provides a strong credit enhancement because of the high rating of the city and the importance of the project area to the city.
HIGH CONCENTRATION LEVEL: The district is highly concentrated, with 45% of revenues coming from the top 10 taxpayers.
DEBT SERVICE RESERVE CUSHION: Reserves held by the bond bank in excess of the level required by the indenture provide additional support for debt service.
ADEQUATE COVENANTS: Adequate legal covenants protect bondholders.
RATING SENSITIVITIES:
CITY RATING: Changes in the credit quality of the city could affect the value of the moral obligation pledge.
TAXPAYER CHANGES: A reduced presence by one of the top taxpayers that is not replaced could materially impair tax revenues.
SECURITY:
The bonds are limited obligations of the bond bank, payable solely from tax increment revenues and funds pledged under the indenture. The bond bank has no taxing power. The bonds are additionally supported by a standard debt service reserve fund, which the city has pledged its moral obligation to replenish. Additional subordinate bonds are subject to a 1.25x additional bonds test.
CREDIT PROFILE:
The district, also known as the Consolidated Redevelopment Project Allocation Area (the allocation area), consists of eight merged redevelopment areas located in the central business district in the city's downtown, plus two additional parcels added in early 2012. The allocation area is the core of the city's robust economy.
ALLOCATION AREA BENEFITS FROM EXPANSION AND CONSTRUCTION
The allocation area is commercially diverse and includes residential and office buildings, luxury hotels, retail, wholesale and manufacturing facilities. It has benefited from convention business, sports-related development and commercial activity over the last 20 years resulting in a revitalization of downtown Indianapolis. A significant portion of this revitalization has occurred since the opening in 1995 of the Circle Centre Mall, occupying two city blocks, as well as significant expansion of Eli Lilly's headquarters and the opening of luxury hotels. The most recent development activity includes the construction of a new $450 million JW Marriott Convention Center headquarters hotel which opened in 2011.
With the continued development in the tax base, tax increment revenues have increased at a healthy rate and continue to service debt at solid levels. Total assessed value (AV) for fiscal 2013 is almost $2 billion, of which base valuation makes up only $38 million or a small 1.9%. AV grew a robust 17% in 2012 and 21% in 2013 as a result of the JW Marriott project coming online, as well as other development in the area.
Coverage of combined senior and subordinate lien debt service from fiscal 2013 estimated tax increment revenues is a strong 2.39 times (x). The senior lien bonds (series 1992D) have a closed lien and are scheduled to mature in February 2014. Coverage on subordinate lien bonds in 2014 (the year maximum annual debt service occurs), remains ample at 2.32x from estimated fiscal 2013 revenues. A notable portion of the outstanding subordinate lien bonds are capital appreciation bonds, which are evenly layered into the overall amortization structure.
The top 10 real property taxpayers represented a high 45% of 2013 net real AV in the area. The largest taxpayer is Eli Lilly and Co. (Fitch IDR 'A', Outlook Negative) at 11%. Additionally, tax increment revenues generated from personal property tax, which represent 30% of combined real and personal property estimated tax increment revenues in 2013, are primarily payable by Eli Lilly and JW Marriott.
CITY PROVIDES MORAL OBLIGATION BACKING
The 'AA' rating on the bonds is supported by the city's moral obligation pledge. According to the ordinance governing the city's moral obligation, if revenues are projected to produce a shortfall in debt service requirements and cause a draw on the reserve fund, the chairman of the bond bank will certify the deficiency to the city council within 90 days of such projection, or prior to Dec. 1 of the fiscal year when the deficit is expected to occur, whichever is earlier.
The bond bank covenants that it will take all actions required or permitted to certify any deficiency to the city council within 90 days, regardless of whether the deficiency was anticipated in the annual budget. The council could then choose to appropriate the funds necessary to replenish any deficiencies in the bonds' debt service reserve fund.
MULTIPLE RESERVE FUNDS PROVIDE ADDITIONAL SUPPORT
Each series of bonds has a standard cash-funded debt service reserve fund. The bond bank currently has a TIF Stabilization Fund funded at $10 million and an Appeals Reserve Fund funded at $22.2 million which could be applied towards any outstanding bond bank tax increment supported debt.
ALLOCATION AREA ANCHORS HEALTHY INDIANAPOLIS ECONOMY
The Indianapolis economy is well diversified and includes pharmaceutical production, health services, life and sciences companies, manufacturing and other business and professional services companies which are leading the employment and city's industrial output. Development in the city has been ongoing increasing the city's ability to generate tax revenues and improve employment opportunities. The city's population has grown 5% since 2000. For additional financial information on the city, see Fitch's press release for the City of Indianapolis, IN's GOs dated Feb. 12, 2013.
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, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and 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=789722
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