OREANDA-NEWS. Fitch Ratings has affirmed the 'A' rating on the following Denver Union Station Project Authority, CO (DUSPA) obligation:

--$145.6 million senior lien note, series 2010 (Denver Union Station Project).

The Rating Outlook is Stable.

SECURITY
The note is payable from a senior lien on pledged revenues comprising a $12 million annual payment from the Regional Transportation District, Colorado (RTD) and property and sales tax revenue generated by development in a defined project area adjacent to the Denver Union Station (DUS) facility. RTD's $12 million annual payment obligation to DUSPA is derived from residual revenue from RTD's 0.4% sales and use tax (approved by voters in November 2004) and excess 0.6% sales and use tax revenue after payment of RTD's senior sales tax bonds; FasTracks bonds and parity debt; and concessionaire payments for its Eagle Project, which begin in 2017.

KEY RATING DRIVERS

COVERAGE NOT DEPENDENT ON DEVELOPMENT REVENUES: The rating on the senior lien note reflects solely the RTD portion of pledged revenue, since the level of other pledged revenue is dependent on future development. RTD's obligation is evidenced by a bond, payment of which is subordinate to RTD's FasTracks sales tax bonds which are rated 'AA' by Fitch.

RATING DIFFERENTIAL REFLECTS LEGAL PROVISIONS: The senior lien notes are currently rated below Fitch's rating on the FasTracks bonds. The lower rating is due to the subordination to debt service payments to the Eagle Project concessionaire beginning in 2017 and the potential for further RTD leveraging that could dilute coverage on the senior lien note.

NO ADDITIONAL DEBT ANTICIPATED: While additional debt is allowed by the indenture, none is planned as the DUS project has been completed. Plus, the noteholder is somewhat protected by an additional bonds test (ABT) and the veto rights of any of the four parties involved in the financing - the Transportation Infrastructure and Finance Innovation Act (TIFIA) Joint Program Office, Railroad Rehabilitation and Improvement Financing (RRIF) Joint Program Office, City and County of Denver, and the RTD.

HIGH-PROFILE TRANSIT PROJECT: DUS is an important project to the RTD, Denver, and other area municipal entities. Support is evidenced by voter approval for the project, other entities' revenue allocations, and the city's moral obligation pledged on a subordinate RRIF loan. DUS serves as the new hub for the region's large and growing transit system.

RATING SENSITIVITIES

ADDITIONAL LEVERAGING: RTD'S aggressive expansion efforts and innovative financing arrangements could result in additional debt liens on parity with or ahead of DUSPA's position in RTD's current flow of funds. Such a move could result in negative rating action for DUSPA's senior lien note.

CREDIT PROFILE
DUSPA, a multi-agency non-profit corporation, was created in 2008 to finance and implement the DUS project. DUSPA agency members include Denver, the RTD, the Colorado Department of Transportation (CDOT), and the Denver Regional Council of Governments (DRCOG). DUSPA has no power to levy taxes, assessments, or condemn property by eminent domain. As a result, it is not subject to the Taxpayer Bill of Rights (TABOR) requirements.

HIGH-PROFILE TRANSIT PROJECT

The DUS project serves as the new hub for Denver's transit system, linking RTD's existing light rail and bus network with its ongoing FasTracks expansion. This expansion includes 119 miles of new light rail and commuter rail, 18 miles of rapid transit bus service, 21,000 new parking spaces at rail and bus stations, and expanded bus service in all areas.

The $480 million DUS project includes: an underground bus terminal with 22 bays; a light rail station for current and future light rail lines; a commuter rail station (with eight tracks) that will also serve Amtrak; public plazas and spaces to integrate transit services and private development; and the renovation of historic Union Station. The project was completed in May 2014 within budget and on schedule.

The project was built on 19.5 acres purchased by RTD. Of this tract, 13.5 acres are designated for the transit facilities and six acres are available for private commercial and residential development. The funding sources included the $146 million series 2010 senior lien note (TIFIA loan), a subordinate lien RRIF loan ($155 million), grants ($103 million), and cash contributed by RTD and other sources ($76 million). The senior lien note is structured with a 30-year maturity.

ANNUAL RTD PAYMENT ONLY FIXED PLEDGED REVENUE SOURCE

In addition to RTD's annual $12 million payment, pledged revenues on both levels of debt include incremental property and sales tax revenues collected within the DUS project area and DUS metro district mill levies. Development activity within the project area has exceeded original projections and Fitch expects development activity to continue. That said, Fitch considers the pace and scope of such development very speculative. As such, development-related revenues are not currently a rating factor for the senior lien note.

COVERAGE NOT DEPENDENT ON DEVELOPMENT REVENUES

The senior lien note debt service has been sized not to exceed RTD's annual $12 million payment, which provides the basis for the investment-grade rating. Payments on the note extend through 2040, as does the funding agreement between RTD and DUSPA that obligates RTD to pay $12 million per year. The senior debt service reserve fund (DSRF) is equal to 50% of maximum annual debt service (MADS) but can be used to meet deficiencies in the payment of the subordinate RRIF note, leading Fitch to view the senior lien note as effectively without a DSRF.

In 2008 RTD established a public-private partnership to design, finance, build, operate, and maintain key elements of the FasTracks project. RTD approved Denver Transit Partners (DTP) as the concessionaire in summer 2010. In August 2010, RTD issued $398 million in private activity bonds on behalf of DTP ('BBB-'). RTD's debt service payments to the private concessionaire, which start in 2017, are to be paid before the $12 million annual payment to DUSPA.

BARRIERS TO ADDITIONAL DUSPA DEBT, BUT RTD LEVERAGE A RISK

With the successful completion of the Denver Union Station project, DUSPA has no plans to further leverage its pledged revenues. However, additional bonds are allowed by the indenture but are subject to veto by TIFIA, RRIF, Denver, and RTD, and are further contingent on an ABT requiring three successive years of 1.35x coverage of annual debt service by all pledged revenues. Notably, the senior lien note is not subject to accelerated repayment in the event of default under the RRIF obligation related to payment, covenant, misrepresentation, subordinate DSRF, or cross-default.

RTD's own debt plans include the issuance of $150 million of FasTracks bonds during the first quarter of 2016. RTD also plans to expend $201 million for rolling stock in 2016-2020 which will either be funded with pay-go or financed with COPs. Including RTD's Eagle P3 project to construct and operate $1.3 billion of its FasTracks capital plan, RTD's annual gross coverage of the DUSPA payment and FasTracks bonds is projected at 3.5x or greater through 2019. This projection is based on a conservative zero sales tax revenue growth scenario. RTD's actual sales tax collections have grown by a compound annual average of 6.7% since 2010 and year-to-date receipts are up by 6.4% for the first eight months of 2015.

The ABT for FasTracks bonds is solid at 2x. RTD also maintains a net revenue coverage policy of 1.2x for all debt obligations which Fitch considers an important credit feature. Diminished margins relative to this policy level or the establishment of another debt lien on parity or superior to DUSPA's position in RTD's flow of funds could result in negative rating action on DUSPA's senior lien note.