Fitch Rates Sand Creek Metro District, CO's GOLT Bonds 'A'; Outlook Stable

Fitch Ratings assigns an 'A' rating to the following Sand Creek Metropolitan District, Colorado (the district) general obligation limited tax (GOLT) bonds:

--$6.3 million GOLT refunding bonds, series 2014A;

--$3.5 million GOLT improvement bonds, series 2014B.

The bonds are scheduled to price the week of Feb. 10, 2014.

In addition, Fitch affirms the 'A' rating on the following bonds:

--$64.9 million outstanding GOLT bonds (pre-refunding).

The Rating Outlook is Stable.

SECURITY

The bonds are payable from the district's property tax levy, limited to 42.5 mills, and from specific ownership taxes.

KEY RATING DRIVERS

TAXPAYER CONCENTRATION: This limited purpose district has a mix of commercial, industrial and residential space with high concentration among the top tax payers.

LIMITED OPERATIONS; SOLID RESULTS: The operations and maintenance (O&M) requirements of the district are modest and funded by an unlimited O&M mill levy which Fitch considers positively. The district maintains a healthy financial position.

WEAK DEBT PROFILE; MINIMAL NEEDS: The debt profile is characterized by high debt levels and slow principal amortization, balanced against limited future debt needs.

MODERATE TAX BASE LOSSES: Recessionary pressures did impact the district's tax base moderately but recent market absorption trends and notably high occupancy rates fueled favorable reassessment gains in the current year. Fitch believes that ongoing and planned development will allow the multi-use district to return its assessed values (AV) to pre-recessionary levels.

ADEQUATE TAXING MARGIN: Recessionary AV losses required increases in the district's limited debt service mill rate but adequate margin remains. Recent AV gains and the absence of future debt plans further aids the prospect of sufficient debt service coverage by the district's resource base.

RATING SENSITIVITIES

LARGE SUSTAINED TAX BASE LOSSES: Sustained and large tax base declines that lead to significantly diminished taxing margin would likely lead to negative rating action.

CREDIT PROFILE

The Sand Creek Metropolitan District is a limited purpose special district encompassing 1,253 acres in the northeast Denver metropolitan area, approximately 12 miles east of downtown Denver and 10 miles southwest of Denver International Airport (DIA). The district provides financing for the construction and installation of streets, drainage structures, street safety controls, parks, water and sewer improvements and other infrastructure systems needed to encourage and support the existing and future development.

DIVERSE SECTORS

The district consists of Gateway Park, a master-planned office park, which has been in development since 1995. The mixed-use business park currently totals about 3.8 million square feet of diverse commercial development. Represented sectors include warehouse, distribution, and research and development facilities (comprising about 70% of total square footage), office buildings (21%), and retail, restaurants, and services (8%). The district also includes 15 hotels with over 2,234 rooms and a residential area with 176 town homes and 778 apartments.

HIGH TAX BASE CONCENTRATION

The primary credit weakness is the concentrated tax base. The top 10 taxpayers total 30% of the district's AV, down notably from 67% concentration in 2006. Additionally, the developer's properties account for a high 20% of the district's AV. Fitch believes such concentration is somewhat balanced against the diverse lease-hold interests represented by 139 different tenants and stable occupancy trends.

AMPLE FLEXIBILITY IN MEETING LIMITED OPERATIONS

The district's limited operating costs and high reserve levels provide it with ample financial flexibility, aided by an unlimited O&M mill levy. Liquidity of the district's general fund has improved notably in the last three years, now equaling over seven months' worth of expenditures in 2012. However, reserves remain modest as a nominal dollar amount, totaling $0.8 million in 2012.

HIGH BUT STABLE DEBT; LIMITED CAPITAL NEEDS

Proceeds of these issuances will be used to fund infrastructure improvements and to refund outstanding debt for interest cost savings. The district's overall debt burden is a high 16.6% of market value, driven by City and County of Denver (GO bonds rated 'AAA' by Fitch) debt as well as Denver School District No. 1 (GO bonds rated 'AA+' by Fitch). Debt service carrying costs totaled a very high 53% of spending in 2012 which is not unusual for limited purpose entities with minimal operating responsibilities. Amortization is below average with 38% of debt retired in 10 years.

Future capital needs are minimal and no additional debt is planned although the current new money offering was not previously anticipated. Due to recent AV losses, the district raised its debt service millage to 30 mills in 2014. The district does not expect to exceed 30 mills and may actually lower it given ongoing and planned development, leaving sufficient margin below the 42.5 mill cap. State law allows a maximum mill rate of 50 but this would require a change to the district's service plan by Aurora.

MODERATE TAX BASE LOSSES

The maturing district is 69% developed and benefits from a favorable location for further growth, along Interstate 70 near DIA in the City and County of Denver and the City of Aurora. After posting steady gains to its tax base since its inception, the district's AV declined by a cumulative moderate 10.8% in 2011-2012, fueled by rising vacancy rates and exacerbated by the delay or cancellation of planned projects. AV stabilized in 2013 and grew by 7.2% in 2014. The majority of the 2014 AV gain (70%) was the result of reassessment gains enabled by rising occupancy levels and lease rates.

DEVELOPMENT TRENDS

The district reports that occupancy has increased to nearly 100% for most sectors except office properties which comprise a modest 10% of district AV. The district reports 13 projects, totaling an estimated $28 million in AV (a 14% gain), are either completed, under construction, or permitted. These projects represent diverse sectors and are scheduled to impact the tax rolls beginning in 2015. Additional transit-oriented development may also materialize in the medium term, following completion of the Regional Transportation District's East Corridor Rail Line to DIA, which includes a station within the district.

Additional information is available at 'www.fitchratings.com'

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was informed by information from CreditScope, University Financial Associates, S&P/Case Schiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.

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

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=818890

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