Fitch Rates Monarch-Chesterfield Levee Dist, MO's Bonds 'A'; Outlook Stable
--\$26.105 million levee district refunding bonds, series 2015.
The bonds are expected to sell via negotiated sale the week of June 29. Proceeds will be used to refund the district's outstanding series 2006A, series 2009 and series 2010 bonds.
In addition, Fitch affirms the following ratings:
--\$2.495 million levee district improvement bonds, 1999 at 'A';
--\$6.925 million levee district improvement bonds, 2006A at 'A';
--\$3.405 million levee district improvement bonds, 2009 at 'A';
--\$1.885 million levee district improvement bonds, 2006B at 'A-'.
The Rating Outlook is Stable.
SECURITY
The bonds are special limited obligations payable solely from a special levee tax (SLT) levied against certain benefitted property. The amount of the SLT is proportionate to the benefits conferred upon each parcel and constitutes a lien on property to which only the lien of the state for general state, county, school and road taxes are paramount. The bonds are also secured by series-specific, cash-funded debt service reserves equal to the IRS standard.
KEY RATING DRIVERS
HIGH CONCENTRATION LEVELS: Taxpayer concentration is high for all of the bonds, with a particularly high concentration level for the series 2006B bonds. This higher concentration results in a rating one-notch lower than on the other series.
HEALTHY RESERVES: The district continues to maintain healthy reserves, and operating expenditures are nominal.
STRUCTURE CREATES POTENTIAL VOLATILITY: The process to adjust assessments to account for missed payments could take time. The bonds have sum-sufficient coverage with no cushion for non-payment. This risk is somewhat offset by both pledged and unpledged reserves.
SLOWED AMORTIZATION: The current refunding issue slowed amortization, with 41% repaid in 10 years.
RATING SENSITIVITIES
REDUCTION OF RESERVES: A significant reduction in cash reserves would limit the district's financial flexibility and ability to withstand potential tax payment interruptions.
CREDIT PROFILE
The district, which encompasses a 7.4 square mile area located 20 miles west of St. Louis, was incorporated in 1947 to protect and reclaim land from wash and bank erosion and water overflow. The district's economy is driven primarily by commercial and retail interests and agriculture, but is part of an affluent suburban region.
SLT IMPOSED BASED ON PROPORTIONATE BENEFIT
The district is required to impose the SLT in an amount sufficient to pay debt service on the bonds. If at any time the SLT revenues are insufficient, the district is required to increase the tax as may be necessary to pay debt service. The levy on any one taxpayer cannot exceed the proportionate benefit conferred upon its parcel. SLTs are collected by the county and unpaid taxes result in a lien placed upon the delinquent parcel of land.
Levee taxes not paid by Dec. 31 of the year in which they are levied become delinquent and bear a penalty of 1% per month on the amount of such unpaid taxes until paid. Liens for delinquent levee taxes can be enforced by legal suit. Upon enforcement of a successful suit, the lien can be foreclosed in an effort to recover the delinquent taxes. Tax payments are received several months before debt service payment dates, but timely collection of delinquent assessments is not assured. This would be especially concerning if one of the larger taxpayers failed to make a payment, given the concentration. In the interim, the delinquent taxpayer's tax shortfall would need to be backfilled by excess funds on hand or the debt service reserve.
Additional bondholder protection is derived from an emergency clause which allows the district to levy the SLT at a rate 10% above the debt service requirement tax rate without violating the 'proportionate benefit' section pursuant to the enabling act. The district has not used this additional levying capacity to date.
DISTRICT MAINTAINS AMPLE RESERVES
The district maintained excess funds available (but not pledged) for debt service of \$8.9 million at the close of fiscal 2014 (June 30 fiscal year) in addition to various pledged debt service reserve funds amounting to \$7 million. Approximately \$3.8 million of the unpledged excess funds have been used for projects and contributed to the current issuance, so the district will still have \$5.1 million of excess funds available, or almost 1.7x maximum annual debt service (MADS). Much of these excess funds were obtained in 2012, when the district sold a parcel of land for \$14.5 million. The district's ongoing operations are limited; the bulk of total expenditures consist of debt service.
The current issue refunds much of the district's outstanding debt and eliminates a large spike in debt service from 2018-2020. With the refunding, MADS declines from \$8.1 million to \$3.1 million. Debt amortization is extended, with the final principal payment shifted from 2029 to 2045, slowing amortization such that 41% of bonds are repaid within 10 years. There are limited legal restrictions regarding the issuance of additional bonds, but the district does not anticipate issuing additional bonds in the near future. The district expires in 2047.
NOTABLY HIGH CONCENTRATION LEVELS
The largest SLT payer accounts for 8.8% of the total special assessment levy on the series 1999, 2006A, 2009 and 2015 bonds, and the top 10 account for 38%. The top taxpayer for the series 2006B bonds accounts for 16.6% of the total special assessment and the top 10 71%. St. Louis County (rated 'AAA', Stable Outlook) is the largest taxpayer for the 2006B bonds and second largest for the other bonds, offsetting some of the concern over the high concentration.
There are a limited number of taxpayers, especially for the series 2006B bonds. The tax is levied on approximately 772 parcels associated with the series 1999, 2006A, 2009 and 2015 bonds and only 108 parcels are in the sub-district associated with the series 2006B bonds. The continued development of available land should dilute existing taxpayer concentration somewhat.
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