Fitch Affirms CivicVentures (Anchorage), AK $110MM Hotel Tax Revs at 'A'; Outlook to NegativeSAN FRANCISCO--(BUSINESS WIRE)--As part of continuing surveillance efforts, Fitch Ratings affirms the 'A' rating on CivicVentures' (AK) outstanding $109.7 million revenue bonds, series 2006 (Anchorage Convention Center). The Rating Outlook is Revised to Negative.
The Negative Outlook reflects the large decline in pledged revenues (hotel occupancy taxes [HOT]) through third quarter 2009 and the expectation that pledged revenues and debt service coverage will remain pressured over the near term. The 'A' rating is based upon the still adequate debt service coverage by current year revenues, the prominence of the hospitality industry in Anchorage and its diverse hotel base, good historic HOT revenue generation, and solid legal provisions as well as the potential need for additional revenue sources to support tourism promotion in the city should the HOT not return to previous levels. The key rating drivers are the HOT's stability and return to at least modest growth as well as successful operations of the convention center.
The bonds were issued by CivicVentures, a single-purpose nonprofit created to finance the construction of a convention center in downtown Anchorage, and secured by a portion of the city's 12% HOT. In addition to funding acquisition and construction for the new facility, proceeds were designated to improve the city's existing meeting facility (the Egan Center) and provide for connectivity between the two facilities, and provide for parking. Debt service increases about 1.2% each year, and the reserve fund is sized at maximum annual debt service (MADS), payable in 2038. Construction of the convention center was completed on schedule and on budget in September 2008.
In April 2005, voters authorized a 4% increase in the city's HOT to 12% and the issuance of revenue bonds to construct a new convention center. The bonds are secured by pledged revenues consisting of the additional 4% hotel tax as well as portions of the existing tax, which was previously used for tourism promotion and general government purposes. After increasing 7.9% on average from 2005 through 2009, hotel tax revenues declined about 15% for the year ending Sept. 30, 2009 compared to one year prior. Moreover, the pace of decline has accelerated to about 22% for Q3 2009 compared to third quarter 2008. Nonetheless, pledged revenues for the 2009 bond year ending Sept. 1, 2009 are projected to generate $10.8 million, covering 2009 debt service of $6 million 1.8 times (x) and MADS of $8.4 million 1.3x. The additional bonds test provides good protection against over-leveraging, requiring pledged revenues to cover debt service 1.75x.
The convention and visitor industry is an important part of the Anchorage economy, and the city proactively markets itself to regional, national, and international audiences. As such, the HOT has provided a healthy and growing revenue resource, but one which, like most hotel tax revenues, has experienced some volatility. From 1995 through 2000, hotel tax revenues were very strong, growing an average of 7.2% annually. The period from 2000 through 2005 included a number of challenges to the travel industry, which resulted in two years of decline and an average annual growth rate of only 1.5%. As noted, since 2005, annual growth was very strong before declining steeply in 2009.
The new convention center targets conventions and meetings with between 1,500 and 5,000 attendees, a market that was previously unavailable to Anchorage due to size constraints. As the hub for many services and transportation in Alaska, Anchorage is also a leading visitor destination for in-state tourist and commercial travel. Wealth levels in Anchorage are above state and national averages, and employment and wage levels have grown steadily in recent years.
Additional information is available at 'www.fitchratings.com'.
Posted: December 8, 2009
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