OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB-' ratings for the following Howard Bend Levee District, Missouri (the district) securities:

--$16.6 million levee district refunding and improvement bonds series 2005;

--$5 million (Creve Coeur airport sub-area) levee district improvement bonds series 2007.

The Rating Outlook is Stable.

SECURITY

The bonds are special limited obligations payable solely from a special levee assessment (SLA) against certain benefited properties. The SLA is set to cover debt service and is proportionate to the benefits conferred upon each parcel. The bonds are also secured by deal-specific, cash-funded debt service reserves funds (DSRF) equal to the IRS standard.

KEY RATING DRIVERS

STRUCTURED WITH THIN COVERAGE: The district is required to maintain only thin coverage of 1.0x on the bonds from its annual installment levy, and has additional flexibility in its authority to levy up to 1.1x for debt service under emergency levy authorization, as well as up to a 10% maintenance levy usable for but not intended for debt service.

LIMITED EXCESS CASH AVAILABLE: The rating additionally reflects Fitch's long-term expectations that the district will maintain limited additional cash on hand for debt service outside of annual collections.

SIGNIFICANT TAXPAYER CONCENTRATION: Both series of bonds display considerable taxpayer concentration with the top 10 payers accounting for at least 80% of total collections. However, a substantial portion of top taxpayers are governmental or quasi-governmental entities. The number of taxpayers obligated to repay both series is also notably limited.

LIMITED ECONOMY: The district's economy is small and concentrated with gaming, agriculture, and governmental interests represented.

RATING SENSITIVITIES

DECLINES IN TAX COLLECTIONS: Interruption in the timely payment of the SLA by top taxpayers would create a major cash flow disruption, which in the short term could result in DSRF use. Tapping the DSRF would apply downward pressure to the rating.

SUBSTANTIAL DIVERSIFICATION: A high degree of diversification in taxpayers from current very concentrated levels may create upward rating momentum. Fitch does not believe that this is likely in the short term.

CREDIT PROFILE

The district encompasses a 10.4 square mile area 20 miles northwest of St. Louis. It was incorporated in 1987 to protect and reclaim land from wash and bank erosion and water overflow. The district's board is comprised of five district property owners.

HIGH TAXPAYER CONCENTRATION

Taxpayer concentration is a significant credit concern for the district and both series of bonds.

For the 2005 bonds, the SLA is levied on 391 benefited properties. Hollywood Casino St. Louis (the casino) is the largest taxpayer for the 2005 series bonds and accounted for 32% of the total SLA on those bonds in 2013; the top 10 taxpayers account for 80%. Seven of the top ten taxpayers for the 2005 series are governmental entities and include the State of Missouri, St. Louis County, and Metropolitan St. Louis Sewer District.

For the 2007 sub-area bonds, the SLA is levied on approximately 150 benefitted properties. The top taxpayer for the series 2007 bonds was a trust which accounted for 18% of the total SLA in 2013, and the top 10 comprise 85%. The project subarea associated with the series 2007 bonds does not include the casino. Only one of the top ten taxpayers is a governmental entity: city of Maryland Heights.

SLA COLLECTIONS STRUCTURED WITH TIGHT COVERAGE

The bonds are special limited obligations payable solely from an SLA levied on certain property in proportion to the flood abatement benefits for each parcel. The district is required to impose the SLA levy in an amount sufficient to pay debt service on the bonds. The district currently levies a total SLA equal to annual debt service (1.0x coverage). The district may levy up to 1.1x coverage for its SLA levy and an additional 10% emergency levy, providing up to 1.2x coverage.

SLAs are collected by the county and unpaid taxes result in a lien placed upon the delinquent parcel of land; this lien is subordinate to property taxes. Governmental entities are subject to the district's levy under state statute.

The district's ongoing operations are limited, with the bulk of total expenditures consisting of debt service. Aside from annual levies, the district reports more than $900,000 currently on hand in maintenance and emergency funds which are technically available for debt service, as well as approximately $170,000 of excess monies in a debt service fund, providing some cushion for maximum annual debt service of $2.9 million for all outstanding district debt. The 'BBB-' rating reflects Fitch's expectation that the district will maintain minimal additional funds outside of the DSRF, which currently contains $2 million for the 2005 bonds and more than $618,000 for the 2007 bonds.

ANNUAL CASH FLOW DISRUPTION RISK MITIGATED BY DSRFs

Fitch notes that the potential for cash flow volatility in cases of major taxpayer non-payment is a significant credit weakness. In cases of major taxpayer non-payment, cash flow gaps would be filled with the DSRF until collection of the subsequent annual installment levy. The district is legally required to increase the SLA on all payers to support debt service and replenish deal-specific DSRFs, which are cash-funded to the IRS standard.

The timing of SLA levy and collections is satisfactory in that the levy is due December 31st, in advance of the March 1 principal and interest payment. While Fitch recognizes the district's legal authority to increase revenue in the event of non-payment, Fitch believes the practical application of such authority could prove challenging over an extended term. Fitch notes that the district maintains a strong history of solid SLA collections, currently over 99% and more than 97% through the recession.

LIMITED ECONOMY

The district's economy is notably limited, reliant predominantly on gaming and agriculture but with governmental and quasi-governmental interests represented. The casino is the largest district employer with approximately 1,900 employees.

The district reports that Metropolitan St. Louis Sewer District has recently invested approximately $200 million in its operations within the district. As a result, its total assessed benefits grew from $3.7 million in 2012 to $16.8 million in 2013 and it now is the second largest taxpayer for the entire district. Additionally, Penn National Gaming Inc. purchased the casino in 2012 for approximately $610 million in an all-cash transaction and has invested approximately $60 million in updating and rebranding the facility.