NEW YORK--(BUSINESS WIRE)--As part of its continuous surveillance effort, Fitch Ratings affirms the following Indianapolis Local Public Improvement Bond Bank (bond bank) revenue bonds:
--$44 million outstanding bonds, series 1992D, at 'AA';
--$59
million outstanding capital appreciation bonds, series 1999E, at 'AA';
--$29
million outstanding refunding bonds, series 2002G, at 'AA';
--$146
million outstanding refunding bonds, series 2009B, at 'AA'; and
--$20
million outstanding taxable bonds, series 2009C, at 'AA'.
The Rating Outlook is Stable.
KEY RATING DRIVERS:
--Strong coverage from tax increment revenues
as a result of continued growth in the city of Indianapolis-Marion
County's (the city) downtown tax increment district.
--Concentration
in the top ten taxpayers of the project area.
--Moral obligation
pledge of the city (rated 'AAA' by Fitch, on Aug. 8, 2011) provides
strong credit enhancement.
--Strong reserve levels held by the bond
bank provide additional support for debt service.
--Recent tax
legislative changes and property re-assessments have pressured overall
city and district revenues, but continued new development helps offset
this risk.
--Adequate legal covenants protect bondholders.
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 moral obligation pledge of the city. A debt service
reserve fund also supports the bonds and additional subordinate bonds
are subject to a 1.25 times (x) additional bonds test.
CREDIT PROFILE:
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. It is
commercially diverse and includes residential and office buildings,
luxury hotels, retail, wholesale and manufacturing facilities. The
allocation area 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
earlier this year.
With the continued development in the tax base, tax increment revenues have increased and continue to service debt at adequate levels. The city's consultant estimates net assessed value (AV) for fiscal 2011 at a large $1.5 billion with a base valuation of $38 million or a small 2.5% of total net AV. Coverage on combined senior and subordinate lien debt service from fiscal 2011 estimated tax increment revenues, which includes city-consultant-estimated appeals reductions and partial additions to the tax roll from the new JW Marriott and other new smaller hotel properties, is a strong 1.76x. The senior lien bonds (series 1992D) have a closed lien and are scheduled to mature in fiscal 2013. Coverage on subordinate lien bonds in 2014 (the year maximum annual debt service occurs), remains ample at 1.58x from estimated fiscal 2011 revenues and is projected to rise to 1.79x in fiscal 2014 after projected full JW Marriott real and personal property values are added.
The top ten real property taxpayers represented a high 43% of 2010 net real AV in the area. The largest taxpayer is Eli Lilly and Co. at 10%. Additionally, tax increment revenues generated from personal property tax, which represent 23% of combined real and personal property estimated tax increment revenues in 2011, are primarily payable by Eli Lilly and JW Marriott.
The State General Assembly has enacted numerous legislative changes since 2006 that have affected tax revenues not only for the district but for the city and county as a whole. A mitigant to these changes and the potential reduction in revenues is the provision included in that legislation permitting the city to reduce the base AV of the property in the allocation area if the legislative changes resulted in insufficient AV to generate enough tax increment revenues to pay tax incremented supported obligations.
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 if 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. Although the city council is not obligated to make such appropriations to replenish the reserve fund deficiency, it did adopt an ordinance in 1985 indicating its general intention to consider such appropriations if necessary.
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 toward any outstanding bond bank tax increment supported debt.
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 equivalent to the county growth and slightly below the state's increase of 6.6% for the same period. For additional financial information on the city, see Fitch's Rating Action Commentary for City of Indianapolis, IN GOs dated Aug. 8, 2011, and available at www.fitchratings.com.
Additional information is available at www.fitchratings.com.
In addition to the sources of information identified in the 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', dated 16 Aug. 2010.
'U.S. Local Government Tax-Supported
Rating Criteria', dated 08 Oct. 2010.
Applicable Criteria and Related Research:
Tax-Supported Rating
Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S.
Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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