OREANDA-NEWS. Fitch Ratings affirms the 'A-' rating on the following Denver Urban Renewal Authority (DURA), Colorado's bonds:

--\$150 million Stapleton senior tax increment revenue bonds, series 2013A-1.

The Rating Outlook is Stable.

SECURITY

The bonds are obligations of DURA and are payable from a senior pledge on incremental property and sales tax revenues collected only within the Stapleton redevelopment tax increment area (Stapleton).

KEY RATING DRIVERS

TIF MILLAGE INCREASES BOOST COVERAGE: Voter-approved millage increases in 2013 materially increased property tax revenues and bolstered Stapleton's ability to withstand slower growth scenarios. The taxable resources are generating incremental property and sales tax revenues that provide solid debt service coverage.

ELEVATED CONCENTRATION, DEBT NOT ATYPICAL: Existing taxpayer concentration and high debt levels are evident but are not unusual for tax increment financing (TIF) districts.

STRATEGIC LOCATION: The service area, Stapleton, is strategically located between downtown Denver and Denver International Airport. The diversity of development is another credit positive, with large retail and industrial sectors supplementing residential development.

PROMISING GROWTH PROSPECTS: Stapleton represents the city's only remaining large tract of developable land that includes a residential component. Since 2012, the construction of residential units has ramped up considerably following several years of slowed development.

MATURE URBAN DEVELOPMENT: The service area has attained an advanced level of infrastructure development and only a moderate amount of infrastructure costs remain for the short-to-medium term.

RATING SENSITIVITY

SIGNIFICANT AV AND SALES TAX DECLINES: Large and sustained declines in assessed value (AV) and sales tax receipts would reduce debt service coverage and lead to negative rating pressure.

CREDIT PROFILE

LARGE AND DIVERSE DENVER-METRO REDEVELOPMENT AREA

The Stapleton redevelopment area was created for the purpose of assisting in the financing and construction of infrastructure improvements serving a portion of the former Stapleton International Airport. The redevelopment area is strategically located in close proximity to downtown Denver, major transportation corridors, and Denver International Airport. The development plan creates a mixed-use community that at full build-out is projected to include 12,000 housing units, 13 million square feet of commercial and retail space, and 1,100 acres of open space and parks on about 4,000 total acres.

Development on the first 2,086 of 2,935 projected developable acres is now in its fifth phase, with 80% of the planned 7,300 residential units completed. A regional shopping center and other retail are also in place, with industrial space built and occupied as well. Office construction in the district has lagged other categories.

Housing offerings in Stapleton are varied, with home prices ranging from \$175,000 to \$800,000. Management reports that all homes built in 2013 have been sold, and an average price of \$440,000 in 2014 reflects the generally affluent nature of residents.

The tax base is concentrated, though trending down favorably, with the top 10 taxpayers accounting for 24% of incremental value, down from 44% in 2010. These properties represent a mix of commercial and industrial properties. Forest City Stapleton (the developer) holdings comprise three of the largest 10 taxpayers, accounting for 12.7% of incremental value, including The Shops at Northfield, a regional mall.

SIGNIFICANT INFRASTRUCTURE INVESTMENT

Over \$600 million in infrastructure has been put in place to date, comprising the bulk of such needs for full development. Funding sources include DURA tax increment bonds, excess tax increment revenues, and contributions from other metro districts located within the redevelopment area.

DURA's additional bonds test requires 1.25x coverage based on historical AV for the past two years, which Fitch views as below average. Alternatively, a 1.35x coverage test can be used based on an independent consultant's AV projections over the subsequent three years. Credit concerns are somewhat lessened by the fact no additional senior lien debt is anticipated.

TAX BASE GROWTH PROJECTIONS SUPPORTED BY DEVELOPMENT ACTIVITY

The redevelopment area's AV increased at a strong compound annual growth rate (CAGR) of 14% from 2005-2011. Growth was much more moderate in 2009 and 2010 due to a steep building slowdown and declined by 7.8% in 2012 (reappraisl year 2011). AV growth rebounded promptly, increasing by 6% in 2013 due entirely to new construction. In 2014 (reappraisal year 2013) AV rose by a large 12%, followed by a more modest 2.7% gain in 2015. Stapleton's overall maturity is reflected in its high incremental value (IV) to base year ratio of 9.5 times (x), which would mitigate the effect of falling AV on coverage levels.

The district projects aggressive AV growth (9% - 19%) over the next few years, based on a projection of building 450 homes per year along with continued development of office and industrial facilities. AV growth in 2016 (reappraisal year 2015), projected at 19%, will reflect the recent completion of two hotels, a multi-family housing complex, a senior living facility, as well as expected reappraisal gains and new residential construction. The pace of residential construction within Stapleton improved significantly starting in 2012 with 658-725 homes built annually through 2014, compared to recession period completions of 185-328.

HIGH BUT MANAGEABLE DEBT BURDEN

The debt burden is high but not atypical for TIF districts and should decline as development proceeds. In addition to the 2013 senior bonds, DURA has \$81 million in outstanding Stapleton fixed-rate subordinate bonds, which Fitch does not rate. In the event of default on any subordinate bonds, there is no acceleration of senior debt or other adverse effects to senior bondholders. Notably, the principal amortization of both senior and subordinate lien bonds is rapid with 100% retired in 10 years.

Coverage of senior lien debt service is good, but drops to average levels when including both senior and subordinate obligations. Maximum annual debt service (MADS) coverage of senior lien bonds based on actual 2014 net revenues is strong at 2.4x. The 2013A-1 bonds carry a \$9.3 million debt service reserve (DSR), equal to 47% of MADS. Given the advanced stage of development, ample debt service coverage, and ability to withstand various stress scenarios, Fitch considers the lower than average DSR requirement a credit neutral.

RECENT VOTER APPROVED MILL LEVY INCREASES

The mill rates imposed by the redevelopment area's principal participants rose by a notable 18% in 2013, benefiting DURA's debt service coverage. In November 2012, voters approved a permanent 4.86 fixed mill override for Denver School District No. 1 (GO bonds rated AA+, Stable Outlook by Fitch). Concurrently, voters also approved a permanent waiver of TABOR property tax revenue limitations for the City of Denver (GO bonds rated 'AAA', Stable Outlook by Fitch), allowing the city to raise its O&M mill rate by a large 3.55 mills or 36% in 2013. The combined millage hikes, plus new growth, resulted in a large tax increment property tax levy increase of nearly 20% in 2013. Tax increment property taxes accounted for 60% of combined increment revenues in 2014.

FITCH STRESS TESTS

Due to the large 2013 increase in property tax levies, when combined with ongoing sales tax revenue gains, MADS coverage on the senior lien bonds remains above 2x under a stress test that reduces both incremental property and sales tax by 10% (followed by flat growth). Including the unrated senior subordinate bonds, MADS coverage is still adequate at 1.5x. While Fitch views the district's development assumptions cautiously, this coverage level is adequate.