OREANDA-NEWS. Fitch Ratings has assigned an 'A-' rating to the following Vistancia Community Facilities District's (the district) of Peoria, AZ:

--$37.6 million general obligation refunding bonds, series 2015.

The bonds are expected to sell via negotiation the week of July 20, 2015. Proceeds will be used to refund outstanding obligations for savings.

In addition, Fitch affirms its 'A-' rating for the district as follows:

--$51.1 million (prerefunding basis) of outstanding general obligation bonds.

The Rating Outlook is Stable.

SECURITY
The bonds are direct obligations of the district and are payable from an unlimited ad valorem tax levied against all taxable property located within the district. Debt service on the bonds is also payable from semi-annual developer contributions to make up tax shortfalls, pursuant to the series 2015 standby contribution agreement executed between the district and the developer of the project. A letter of credit (LOC) provides credit support for developer payments.

KEY RATING DRIVERS
GROWING, LIMITED RESOURCE BASE: The 'A-' rating reflects the district's still limited tax base; approximately 40% of post-refunding debt service will be provided by developer contributions. A resurgence of area development activity bodes well for future tax base appreciation and diversification.

UNLIMITED TAX RATE: The credit is supported by an unlimited tax, although it has been held constant to date based on consistency of developer contributions.

ADDITIONAL LIQUIDITY SUPPORT: A LOC is in place to cover potential developer contribution shortfalls until such time as the tax rate can be adjusted to fully pay debt service from property taxes. Fitch believes the LOC would provide sufficient time for a timely tax increase to be implemented.

MODERATE DEBT TO CONTINUE: The district's overall debt burden is moderate and direct debt amortizes rapidly. Additional borrowings are not planned for the district at this time.

RATING SENSITIVITIES
TIMELY CONTRIBUTIONS; LIQUIDITY SUPPORT: The rating is sensitive to the district's ability to levy taxes sufficient to cover debt service in a timely manner in the event of contribution shortfalls and sufficiency of the LOC to provide interim liquidity for debt service pending tax collections at the higher rate.

ECONOMIC GROWTH: Reversal of tax base gains would increase developer contributions and could put pressure on the rating.

CREDIT PROFILE
The district is located in Peoria, which is in the northwest portion of the Phoenix metropolitan area. The district was formed in 2002 and contains more than 6,900 acres.

RESUMPTION OF HOMES SALES AND DEVELOPMENT

Land within the district is being developed as a master-planned, mixed-use development, although growth stalled and values declined during the recession. The tax base dropped by 28% between fiscal 2009 and 2013, before realizing growth in fiscal 2015. Values reflect a two year valuation lag.

Phases 1 and 2 of infrastructure development are currently complete with the Trilogy and Vistancia Villages. As of the first quarter of fiscal 2015, 5,000 homes have been sold in Vistancia, representing about half of full build out.

Full cash value (FCV) in the district increased 14.2% to $1.1 billion in fiscal 2015, and fiscal 2016 FCV of $1.2 billion approximates the fiscal 2009 peak, reflecting resumption of the sale and development of homes. Preliminary fiscal 2016 secondary assessed value (SAV), which is used for the levy of debt service taxes, is $124 million, below the 2009 peak of $144 million.

MODERATE DEBT LOAD

Debt authorization of $100 million was approved for the district in 2002. The district issued three series of bonds against this authorization to support infrastructure development within the district over the past 13 years. This issuance refunds series 2002, 2005 and 2006 for debt service savings, without extension of the term.

Post-refunding, the district will have approximately $37.6 million outstanding, with a rapid amortization of 88% in 10 years. The district's overall debt burden (direct plus overlapping debt) of $65.6 million represents 5.4% of market value. The district does not have any immediate issuance plans. Although future infrastructure needs may be funded with developer monies or issuance against the $32.4 million in remaining authorization.

PAYER CONCENTRATION RISK

Although the bonds are secured by an unlimited ad valorem tax pledge, the board has elected to maintain the property tax rate at $2.10 per $100 of taxable value which is below the rate needed to pay the full debt service. Pursuant to a standby contribution agreement with the district, the developer makes semi-annual payments each year to make up the difference between the annual debt requirement and property tax revenues received.

About 60% of annual projected debt service of $4.5 million is covered by the flat $2.10 tax rate. Near term annual developer contributions are estimated to be about $1.7 million, providing the balance of debt service payments. The city reports that the developer has made consistent contribution payments throughout the recession.

In the event of failure to pay the amounts due, the standby agreement allows the trustee to proceed directly against the developers for amounts due under the agreement and for security required by the standby contribution agreement.

LOC PROVIDES DEVELOPER CREDIT SUPPORT

A developer-established and indenture-required LOC is in place equal to 10% of the par amount of the series 2015 bonds. The LOC is issued by JPMorgan Chase Bank, rated by Fitch 'AA-'; Outlook Stable. The LOC is subject to automatic annual renewal with allowance for a substitute LOC from a provider rated no lower than 'A-'.

Pursuant to the indenture, the depository is authorized to draw upon the LOC if developer payments under the standby contribution agreement are insufficient or in other specific circumstances. There has been no reported draw on previous LOCs to date. The city of Peoria has no liability for the district's debt.

RATING REFLECTS UNLIMITED TAX RATE

Absent developer contributions, the tax rate would rise from the promised $2.10 to approximately $3.60 based on recent TAV levels. An estimated tax rate increase of $1.40 represents a manageable 8.7% increase in the district's 2015 overlapping rate of $16.1 per $1000 of TAV.