Fitch Rates Monarch-Chesterfield Levee Dist, MO's $10.1MM Bnds 'A-'; Stable Outlook.

CHICAGO -- Fitch Ratings assigns an 'A-' rating to Monarch-Chesterfield Levee District, MO's $8.2 million levee district improvement bonds, series 2006A, and $2.3 million levee district improvement bonds, series 2006B, scheduled for negotiated sale on or about July 18 through Stifel, Nicolaus & Company, Inc. In addition, Fitch affirms its 'A-' rating on the district's $24.4 million of outstanding parity debt. The Rating Outlook is Stable.

The series A bonds will finance improvements to the levee system within the entire district (the district). The series B bonds will finance a portion of the estimated $5.2 million project to extend water and sewer utilities into the sub-district area (the sub-district). The city of Chesterfield will contribute the remaining $2.8 million of funds required to complete the financing for the sub-district project. The sub-district is an underlying, smaller assessment area within the district that includes less-developed land. Both series are secured by a special tax levied against each parcel of taxable property within each respective district in proportion to the benefits conferred by the construction of the respective improvements. Each series of bonds is paid from distinct debt service funds, as established by each series' respective bond resolutions.

The 'A-' rating reflects the levee district's strong financial performance and attractive prospects for development due to the growth and affluence of neighboring communities. Additionally, the improvements are secured by the strong enforcement provisions of the special tax which will ensure adequate funding of debt service. While the concentration of the largest taxpayers in both districts represents the greatest risk, this risk is somewhat mitigated by the low lien-to-current market value for the district and sub-district at approximately 4.4% and 7.4%, respectively. The Rating Outlook for the district and sub-district is Stable, based on its minimal future borrowing needs and sizable reserves.

The levee district includes approximately 4,722 acres bordering the Missouri River and bisected by Interstate 64 in the cities of Chesterfield and Wildwood, approximately 20 miles west of downtown St. Louis. Approximately one-half of available land within the district is developed, including the St. Louis County-owned Spirit of St. Louis Airport which serves general aviation and a variety of commercial development. Historically, development has been strong within the district with an estimated 1 million square feet of retail development added since 1998. Development continues with additional growth anticipated from the levee improvements, and more important, the extension of the district's water and sewer infrastructure.

The district is charged with protecting and reclaiming land within its borders from the effects of flooding and erosion, as well as sanitary and agricultural purposes. In 1999, the district implemented an extensive program to fortify its levee system to protect against an estimated 500-year flood event. Including these issues, the district and sub-district will have approximately $34.9 million in outstanding debt, equaling approximately 4.4% of combined market value. Despite the sub-district's lower total assessed benefit, the sub-district's $5.1 million proportional share of outstanding debt equals 7.4% of the sub-district's market value. The sub-district represents approximately $18.3 million (16%) of the district's $113.4 million total assessed benefit.

Under Missouri law, the district generates revenues from two primary sources: an installment tax and a maintenance tax. The installment tax is a special tax levied against property in the district in proportion to the benefits received from the levee improvements. The sub-district levies an additional installment tax on property in proportion to the benefits received from the infrastructure improvements. Proceeds of the installment tax may be set equal to the cost of improvements, including interest from any related debt, with an additional 10% of the cost of improvements allowance as a contingency for emergencies. The separate maintenance tax is levied in a similar fashion for the maintenance and operation of the district's facilities. The maintenance tax is currently levied only on a district-wide basis. While the installment tax may not be used for operations, the maintenance tax may be used for debt service if needed. Unpaid taxes result in a lien placed upon the delinquent parcel of land, for which only the liens of the state, county, school, and road taxes are superior. The county collector collects the taxes for the district and sub-district, which are due Dec. 31 of each year.

The major taxpayers of the district represent 41.8% of the district's total assessed benefit, indicating a high level of concentration for such a district. Major taxpayers include a number of developers and completed retail development including a large strip mall, Target, and Wal-mart. In addition, 17.2% of the district's total assessed benefit is attributed to government-owned properties, mostly St. Louis County (general obligation bonds rated 'AAA' by Fitch). Concentration is greater in the sub-district, with major taxpayers accounting for 83.3% of the sub-district's assessed benefit. As with the district, government-owned properties (also primarily St. Louis County) account for a large portion of the sub-district's assessed benefit at 20.7%. Past Missouri court rulings have established the ability of levee districts to tax municipal governments based on assessed benefits.

Operating expenditures of the district are minimal, with capital outlays and debt service expenses representing 91.4% of the district's total expenditures in fiscal 2005. The district's financial position fluctuated over the last three years due to a $13.5 million tax increment financing note from Chesterfield purchased in fiscal 2002. In spite of fluctuations in financial operations, the district maintained a total fund balance of $21 million at the end of fiscal 2005 (298.5% of total expenditures and transfers out). Excluding the reserves for debt service, construction, and the non-current portion of the TIF note receivable, the district's total unreserved, undesignated fund balance equaled $5.9 million at fiscal-year end 2005, or 83.9% of total expenditures and transfers out.

Local economic and wealth indicators within and surrounding the district are strong. Per capita income levels in Chesterfield and Wildwood equaled 200.5% and 178.3%, respectively, of the national average in 1999. The district is located in St. Louis County, which ranks as the state's largest in terms of both population and total personal income. The county's economic base expanded at a 4.3% average annual rate from 1994-2004, trailing the national average of 5.2%. However, local unemployment rates rank consistently at or below the 5.1% rate for the nation in 2005, at 3.3% for Chesterfield, 3.0% for Wildwood, and 5.2% for the county.

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