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Fitch Affirms CIVICVentures (Anchorage), AK $106MM Hotel Tax Revs at 'A+'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings affirms the following CIVICVenture (Anchorage), AK revenue bonds:

--$106.1 million revenue bonds, series 2006 (Anchorage Convention Center) at 'A+'.

The Rating Outlook is Stable.

SECURITY

Bonds are secured by a gross pledge on a portion of the municipality of Anchorage's (the municipality or MOA) hotel tax revenues. Bonds are also secured by a cash-funded debt service reserve fund sized at maximum annual debt service (MADS).

KEY RATING DRIVERS

NARROW PLEDGED REVENUES; SOLID COVERAGE: Pledged revenues are derived from hotel taxes, a narrow and economically sensitive revenue stream. However, current coverage of MADS is good at 1.59 times (x) and with the project completed, no additional leverage is expected.

ADEQUATE LEGAL PROTECTIONS: The additional bonds test (ABT) is sound, the indenture is a closed loop, and additional security is provided by the cash-funded debt service reserve. Well-structured operating and capital reserve funds are also part of the flow of funds and are a partial mitigant to revenue volatility.

STRONG LOCAL ECONOMY; SOUND HOSPITALITY SECTOR: Fitch believes the municipality's diverse economy supports sustainable long-term hotel demand. MOA's hospitality sector benefits from its role as a regional/state destination for commercial services (banking and healthcare) as well a destination and starting point for tourists visiting the state. However, there is some concentration and recent contraction in the local economy.

WEAK DEBT PROFILE: Debt service escalates moderately resulting in very slow amortization. Although leverage of pledged revenues for debt service is relatively low, when MOA's operating subsidy is included, pledged revenues are highly leveraged.

RATING SENSITIVITIES

The current rating level incorporates pledged revenue volatility within the historical range. Should negative volatility exceed this expectation, there would likely be downward rating pressure.

CREDIT PROFILE

CivicVentures is a single-purpose nonprofit created to finance the construction of a convention center in downtown Anchorage. CIVICVentures is governed by a five-member board of directors appointed by the mayor of the municipality. Construction of the convention center was completed on schedule and on budget in September 2008.

Anchorage is the center of business, trade, transportation, healthcare, education, government and tourism for the Gulf of Alaska region and accounts for more than 55% of the state's economic output.

CONCENTRATED REVENUES; SOUND LEGAL STRUCTURE

The municipality's total hotel tax rate is 12%. Pledged revenues are equal to about 8.59% of all taxable room revenue, or about 71.6% of all room taxes collected.

Voters authorized a four percentage point increase in the city's room tax to 12% and the issuance of revenue bonds to construct a new convention center in April 2005. The bonds are primarily secured by the new 4% convention center room tax (CCRT). The Anchorage Convention and Visitor's Bureau (ACVB) has also pledged 66.25% of the four percentage points it receives from the municipality to promote tourism. The MOA pledges $500,000 per year from its remaining four percentage points room tax to be increased or decreased each year by the percentage change in total hotel taxes collected for the prior year. The ACVB pledges another $500,000 from its remaining room tax revenues likewise to be increased or decreased each year by the percentage change in total hotel taxes collected for the prior year.

The convention center has been complete and operational since September 2008 and as a result no additional leverage is anticipated. The ABT is a sound 1.75x MADS. Additional strengths of the legal structure include the provision that surplus pledged revenues remain within the convention center operations (which may include the prepayment of debt), and well-structured capital and operating reserves.

The operating reserve receives surplus net revenues after debt service, up to a maximum of $5 million. The current balance equals $7.1 million. Once the 2012 financials are completed, the surplus above the maximum will be transferred into the capital reserve fund. The capital reserve fund's current balance is about $930,000. These cash traps help mitigate the risks of revenue volatility and potential increases in net operating costs. To date, the convention center debt service and operations have been fully covered by the 4% CCRT, leaving the excess pledged revenues to fund reserves and tourism promotion.

HISTORICAL REVENUES AND COVERAGE

After increasing an average of 7.9% annually from 2005 through 2008, hotel tax revenues declined each quarter in 2009 compared to the prior year, resulting in an overall decline of 17.7% in 2009. Starting in the first quarter of 2010, though, hotel tax revenues returned to growth and increased each quarter in 2010, 2011 and 2012 for an aggregate increase of 23.7%. Total pledged revenues for the 2012 bond year reached a new peak of $13.5 million, covering $6.2 million of bond year 2012 debt service 2.15x and MADS of $8.4 million by 1.59x.

Despite the decline in revenues, MADS coverage never dipped below 1.35x and annual debt service (ADS) coverage hit bottom at 1.91x. Under Fitch's base case, pledged revenues increase at the compounded average annual rate from 2008-2012 of 0.5%. Due to the escalating debt service, ADS coverage decreases moderately from 2.15x in 2012 to 1.82x in 2038.

Pledged revenues hold up well under various Fitch stress scenarios. Under one scenario which mirrors the cycle of revenues from 2002-2012, revenues drop 0.8% in 2013, 6.5% in 2014, grow moderately through 2019 and fall 17% in 2020, ADS coverage remains at or above 1.97x and MADS drops to 1.49x. Under another scenario whereby hotel tax revenues drop 25% in 2013, MADS coverage drops to 1.21x in bond year 2014. Finally, if pledged revenues fall 5% annually through 2020 and then are flat, MADS coverage drops to a still adequate 1.06x.

HOSPITALITY IMPORTANT SECTOR IN ANCHORAGE; SOME CONCENTRATION

The convention and visitor industry is an important part of the Anchorage economy, and the city, through the ACVB, proactively markets itself to regional, national, and international audiences. 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.

Hotel taxes are somewhat concentrated in the 10 largest tax generators which provide a high 52% of the total. In addition, 2012 saw the closure of three hotels offset by a hotel opening. The net loss in rooms was 375, or about 4.5% of the number of rooms in 2011. Since 2009, the number of rooms has declined by an aggregate 9.6%. Given the continued strong pace of growth in hotel tax revenues through 2012, Fitch is not concerned about this level of contraction.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from IHS Global Insight.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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