OREANDA-NEWS. Fitch Ratings affirms the following rating on Butler County, Ohio Transportation Improvement District (BCTID) obligations:

--\\$40.7 million outstanding highway improvement bonds, series 2007 at 'BBB+'.

The Rating Outlook is Stable.

SECURITY

The bonds are special obligations of the district payable from moneys generated from three tax increment financing (TIF) districts (the primary pledge). The bonds are also payable by a secondary pledge consisting of (a) 25% of non-tax revenues in Butler County's general fund and (b) 95% of income tax revenues available to Liberty Township from the Joint Economic Development District (JEDD).

KEY RATING DRIVERS

STRENGTHENED COVERAGE: Combined primary and secondary pledged fiscal 2014 revenues coverage of maximum annual debt service (MADS) improved to 1.91x in fiscal 2014. Primary fiscal 2014 pledged TIF revenues alone produced MADS coverage for the first time and TIF growth continues as planned.

VOLATILE REVENUES; PROJECTED STRENGTHENING: Pledged revenues consist of historically variable tax increment and county non-tax revenues (charges, fees, and interest earnings). Non-tax revenues, in particular, declined precipitously during the recession, but returned to growth in fiscal 2013. TIF revenues are poised to benefit from various developments soon to come online within the districts.

LIMITED BACK-UP SECURITY: The legal structure for the TIF revenue is strong, requiring retention for future debt service if available. However, structural elements of the secondary pledge limit the additional rating value.

RATING SENSITIVITIES

MATERIAL SHIFTS IN REVENUE: Butler County, Ohio Transportation Improvement District's rating is sensitive to shifts in pledged revenues due to tax base or other changes that affect the amount of available revenue. Material decreases in pledged revenues would have a negative effect on ratings.

Rating improvement would require demonstrated long-term stability in primary pledged TIF revenues.

CREDIT PROFILE

The BCTID was created in 1993 to facilitate common transportation goals among local governments within Butler County. The three TIF districts providing pledged revenue are Butler County TIF, West Chester TIF, and Liberty township residential incentive district (RID), which includes four separate sub-districts. The district's base years were established in 1997 through 2004.

POSITIVE PRIMARY PLEDGE TRENDS AND PROSPECTS

In fiscal 2014, the primary pledge of TIF revenues provided a Fitch-estimated 3.0x annual debt service coverage and 1.1x MADS coverage. This is a significant improvement over the 1.7x annual debt service coverage and 0.7x MADS coverage provided by primary pledged TIF revenues in fiscal 2013. Debt service escalates annually with MADS occurring in 2031.

All three TIF districts experienced a large increase in incremental value in fiscal 2014. The Butler County TIF district recorded extraordinary (non-recurring) revenue of \\$1.9 million related to the reclassification of certain parcels into the TIF district.

These non-recurring revenues inflated fiscal 2014 results, but correcting for one-time revenues, underlying growth continues to accrue. Projections call for a \\$711,000 decline in combined TIF revenue in fiscal 2015 with a return to growth projected for fiscal 2016. Growth assumptions beginning in fiscal 2016 are based on the opening of Cabela's (an 82,000 square foot [sf] outdoor retailer) and the 1.1 million sf Liberty Center (retail/commercial/residential center) in the fall of 2015. Longer-term, Christ Hospital and Cincinnati Children's Hospital have announced plans for expansion, although these developments are not included in management's projections. Fitch believes continued growth in TIF revenue is likely based on robust activity within the districts.

ADEQUATE PRIMARY-PLEDGE LEGAL STRUCTURE
There are no additional parity debt issuance plans, as the funded project has been completed and additional debt was permitted only to ensure project completion. Additional debt in the amount of \\$11.1 million as previously planned was issued in November 2014 (not rated by Fitch), which has a subordinate lien on TIF revenues and a secondary pledge of a separate 25% county non-tax general fund revenues.

Additional security is provided by the capture of excess TIF revenues pursuant to the flow of funds. Excess TIF revenues are retained in the revenue fund until the cash balance in the fund is equal to the subsequent year's debt service payment and the current year TIF revenues are equal to 1.5x subsequent year's debt service. On meeting these conditions, junior lien debt is paid and surplus funds may be returned to the individual development districts. The fund acts as a quasi-supplemental reserve. Fitch gives no credit in its rating to the surety-funded debt service reserve.

If the primary revenue pledge provides at least 1.75x coverage of MADS for three consecutive years and the revenue fund is at least equal to next year's debt service, the secondary pledge is suspended. However, if coverage from the primary pledge ever declines below 1.75x, the county non-tax pledge portion of the secondary pledge is automatically reinstated. Management projects the secondary pledge will be suspended beginning in fiscal 2018.

SECONDARY PLEDGE PROVIDES SOME ADDITIONAL SECURITY

The rating additionally reflects the secondary pledge of 25% of county non-tax general fund revenues, which together with the primary pledge provides MADS coverage at a Fitch-estimated 1.91x. The secondary pledge of county non-tax revenues, alone, in fiscal 2014 would cover MADS 1.2x assuming all revenues were fully available at the time the trustee must make a determination as to their required use for debt service. However, Fitch conservatively calculates MADS coverage from the secondary pledge alone at 0.8x based upon the amount of non-tax revenues that would become available during the 60-day notification period from the trustee in case of insufficient funds.

Pledged non-tax revenues consist of charges for services, interest earnings, licenses and permits, and other revenues. Charges for services comprised over 80% of non-tax revenues in fiscal 2014. Pledged non-tax revenue totaled about 6.8% of 2014 general fund revenues.

Pledged non-tax revenues have declined by 50% between 2007 and 2012, primarily because of decreases in charges for services and interest earnings. However, pledged non-tax revenue grew in fiscals 2013 and 2014. Recent growth primarily resulted from increases in licenses and permits and interest earnings.

WEAK SECONDARY-PLEDGE LEGAL STRUCTURE

The county is not obligated to annually reserve or budget pledged non-tax revenues to pay debt service, limiting their value as a security feature. The trustee is required to notify the county and JEDD 60 days prior to a debt service payment if there is a shortfall from TIF revenue. The county and JEDD have a joint and several obligation to transfer immediately adequate funds, if available, to the trustee from pledged sources, based on an allocation formula. Fitch's analysis of the secondary pledge has focused on the county's pledge of non-tax revenues, as fiscal 2014 JEDD revenues still accounted for only 16% of MADS and about two-thirds of the revenues come from a single payer.