Fitch Rates District of Columbia's $35MM Deed Tax Revs 'A-'; Outlook Stable.

NEW YORK -- Fitch assigns an 'A-' rating to $35 million District of Columbia Deed Tax Revenue Bonds (Housing Production Trust Fund - New Communities Project), series 2007A. The bonds, scheduled to sell via negotiation through a syndicate led by M.R. Beal and Company during the week of Mar. 12, will mature June 1, 2008-2037. CSG Advisors Inc. of San Francisco, CA serves as the District's financial advisor for the financing. The Rating Outlook is Stable.

The underlying 'A-' rating reflects satisfactory debt service coverage provided by pledged deed recording and real property transfer tax revenues, as well as adequate legal provisions which call for debt service funding from prior year revenues and an additional bonds test that incorporates a three-year historical element to offsets risks due to rapid increases in District real estate values. The rating also considers that the pledged revenue stream is narrow and dependent on the value and volume of real property transfers and deed recordation activity in the district. While the revenue stream has generally exhibited positive growth over the past two decades, it has in the past sustained significant year-over-year declines; the largest decrease was 42% realized in FY 1991. Furthermore, the rates of each tax have been significantly increased. Pledged revenue collections in fiscal year (FY) 2006 exhibited a slight decline of 1.4%, following relatively flat performance in FY 2005 that incorporated a significant reduction in deed tax rates.

The bonds are being issued by the District to finance a portion of the Northwest One New Communities project. The District plans to develop nearly 1,700 primarily low income housing units on publicly owned and privately held property in the project area, which sits approximately one mile north of the Capitol. The area is also expected to benefit from additional investments in project area schools, parks, and other infrastructure and nearly 100,000 square feet of new retail space will be part of the project. The bonds are secured by a 15% pro rata share of the district's real property transfer and deed recordation taxes dedicated to the Housing Production Trust Fund. The act creating the HPTF allows the District to issue debt with annual debt service requirements not exceeding $6 million annually for the Northwest One Communities Project or $12 million annually for other like projects. Fitch expects additional bonds fully leveraging this security will be issued prior to FY 2010. The additional bonds test requires 1.5 times (x) coverage of the lesser of pledged revenues for the prior fiscal year or the average amount of pledged revenues for the past three fiscal years.

The District levies its real property transfer tax upon the conveyance of real property or interests therein at 1.45%, except on transactions involving residential property being conveyed for consideration of less than $400,000, in which case the transfer tax rate is 1.10%. The Deed Recordation Tax is a tax of 1.45% imposed upon recordation of deeds, including those concerning a lease or ground rent for a term (with renewals) of at least 30 years. Exceptions are also made in the case of recordation surrounding residential property with consideration of less than $400,000, for which the tax rate is 1.10%. Prior to FY 2002, the tax rates for both real property transfers and deed recordations were 1.10% for all properties, regardless of consideration. A temporary, unqualified increase of 1.50% was instituted for FYs 2003 and 0 2004 and the 1.45% noted herein is the result of a FY 2007 increase with the exceptions noted.

Pledged revenues, based on the District's revised deed tax revenue projections and assuming additional debt issuance up to the $12 million statutory annual debt service cap before the completion of FY 2010, are expected to cover debt service by over 5.1 times. A debt service reserve fund will be funded upon closing with current cash at MADS. However, replenishment of the debt service reserve fund, if it is tapped, is limited by the $12 million transfer cap for debt service.

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