Fitch Rates $500MM Washington Convention Center Auth. Bonds 'A'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns an 'A' rating to Washington Convention Center Authority's (WCCA, or the Authority) (Washington, D.C.) $500 million senior lien dedicated tax revenue and refunding bonds, series 2007. The bonds, which will mature Oct. 1, 2007-2036, are being issued to defease all outstanding maturities of WCCA's series 1998 bonds and to refinance costs related to the acquisition of land necessary for the proposed WCCA Headquarters Hotel. The bonds are expected to be sold through negotiation the week of Jan. 15 by a syndicate led by Morgan Stanley. First Albany Capital serves as WCCA's financial advisor. The Rating Outlook is Stable.

The 'A' rating reflects satisfactory overall performance of pledged dedicated tax revenues, which consist of a 4.45% sales and use tax on hotel rooms and a 1% sales and use tax on restaurant meals, on-premises alcoholic beverage consumption, and automobile rental charges. Also factored into the rating are sound net debt service coverage levels (although bondholders have a gross lien on pledged revenues), the strong District of Columbia tourism market, expectations of limited future debt issuance, and adequate legal provisions despite several modifications proposed in the WCCA's restated Master Trust Agreement (MTA).

The bonds are secured by a senior lien on dedicated taxes, which are segregated from those of the district through a lockbox collection mechanism. In addition to a standard debt service reserve, additional reserves are required to be held at a minimum of $40.3 million for fiscal 2006. Additional security is provided through a provision which requires the Mayor of the district to impose a surtax on the hotel sales and use tax if the sufficiency analysis performed by the district's auditor prior to the ensuing fiscal year indicates a shortfall in revenues as compared with projected expenditures. Currently, no additional senior lien bonds are permitted, but the restated MTA permits additional senior lien debt provided a historical 1.35 times (x) additional bonds test is met. Also, dedicated tax revenues in excess of expenses and maximum reserve and capital fund requirements may now be released to the district's general fund per directive of the WCCA's board of directors, whereas under the prior MTA, excess revenues could only be used to redeem outstanding bonds. Debt service coverage from dedicated revenues was strong at 2.1x in fiscal 2005 and is projected to be 2.2x in fiscal 2006. Combined operating and debt service expenses were covered 1.6x by total revenues (from operations and dedicated taxes) in fiscal 2005 and projected fiscal 2006 coverage is 1.9x.

Since 1998, dedicated tax revenues have grown by 6.7% on an average annual basis and a decline of 3.5% in fiscal 2002 can be attributed largely to the events of Sept. 11, 2001 and subsequent terror concerns. Revenues rebounded soundly in fiscal 2003 with growth of 9.3%. Hotel tax revenues alone, which constitute over two-thirds of dedicated revenues, showed more volatility, declining 9.6% in fiscal 2002 and increasing 14.2% in fiscal 2003 and a robust 27.1% in fiscal 2005. Estimates for fiscal 2006, which ended Sept. 30, indicate a modest 2.9% increase on an overall basis. Projections conservatively estimate dedicated tax revenues for fiscal 2007 will be slightly below expected fiscal 2006 performance, and annual growth of 5.2% is expected in fiscal years 2008 through 2010.

Management reports that domestic visitation to the district in calendar 2005 was 14.1 million, with 49% of travel attributed to business activities. Global Insight projects total visitation to the district will increase by 2.5% annually through calendar 2008. Room rates in 2005 averaged $180, up from $161 in 2004, and the occupancy rate of 75% exceeded the 2000 level of 73%. Year-to-date figures for 2006 indicate the average room rate increased to $193, though occupancy is down slightly to 74%. Prospects for the convention center as well as the tourism market in general appear favorable, given these growth trends and the pending convention headquarters hotel. A planned expansion of the center will require approximately $140 million in additional senior lien debt and a portion of the costs of the convention center hotel will be secured by TIF revenues and potentially a subordinate lien pledge on dedicate taxes.

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