Fitch Rates Mountain Village Metro District, Colorado's $14MM GOs 'A-'.

SAN FRANCISCO -- Fitch Ratings assigns an 'A-' rating to the Mountain Village Metropolitan District, Colorado (the district) $14 million general obligation (GO) bonds, series 2006B. The bonds will be sold through negotiation with Piper Jaffray & Co. and D.A. Davidson & Co. the week of Oct. 30. Additionally, Fitch affirms the 'A-' rating on the district's $37.7 million in outstanding GO bonds. The Rating Outlook is Stable.

The rating reflects the district's high property values, sound development history, rapid debt amortization, and prudent financial operations. The rating also incorporates the likelihood of a merger with the town of Mountain Village (the town), which does not change the bonds' security. The bonds are secured by the full faith and credit of the district payable from ad valorem property taxes without limitation. Additional security is provided by a $300,000 liquidity fund pledged to the bonds in order to address any property tax delinquencies. Furthermore, the merged entity will have a strong incentive to ensure timely debt repayment. Bond proceeds will be used for the construction of a family adventure sports center consisting a 35,000 square foot facility at the ground floor of a major condominium project at the base of the gondola transit provider.

Credit concerns exist in the district's predominantly tourism-based economy and above-average reliance on major taxpayers. Taxpayer and economic concentration is likely to remain at moderate to high levels in spite of continued residential and commercial development. Furthermore, as a resort and second-home area, the district's economy remains vulnerable to economic downturns, changes in vacation and recreational trends, and weather conditions. The debt burden is very high on a per capita basis based on permanent residency, although it is affordable in light of the area's affluence, and within the range of similar resort communities. Neither the town nor the district has any further bond authorization.

The district encompasses 2,072 acres near the town of Telluride and is coterminous with the town of Mountain Village. The town was established in 1995 to gain more control over land-use issues than the district was afforded by state law. The district's luxury second-home and tourism-based economy has exhibited strong development to date. Assessed value gains have been sizable, averaging 12.3% compounded annually from 1999 through 2006. The tax base includes the ski area and related commercial holdings, a high-end resort and spa, timeshare units and condominiums, single-family and duplex homes, and commercial and retail business. Dependence on top 10 taxpayers increased in 2005 (to 19% from 13% in 2004) as a result of sizeable investments by two large taxpayers. Nearly all infrastructure is in place to support full build-out, which could bring population to about 8,000, up from about 1,650 currently. Residential property makes up about 51% of assessed value and commercial about 11%. The remainder is vacant land, mostly zoned for residential development.

Financial operations are sound. Fund balance levels tend to fluctuate due to capital expenditures but generally are high. The district ended 2005 with an unreserved fund balance of $1.4 million or 27% of expenditures and transfers out. Operating revenues consist primarily of property taxes and intergovernmental revenues from the Mountain Village Owner's Association (MVOA). Beginning in fiscal 2004, the MVOA, with a 3% real estate property transfer tax averaging $6.5 million since 2000, shifted certain property maintenance functions to the district, but retains full funding responsibility. The town, meanwhile, ended 2005 with a $3.0 million fund balance and expects to end 2006 with over $3.5 million.

In order to more efficiently deliver services to its residents, the district and town are seeking to merge, an action which will go before district voters next month. If approved, the merger will dissolve the district for all purposes except levying the ad valorem property taxes to pay debt service on these and the outstanding parity bonds. Fitch believes the district's credit quality after the merger will remain 'A-'; the merged entity will have the same tax base and economy as well as the same strong financial management. The town currently retains high reserves and the five-year financial forecast for the merged entity projects continued financial strength. These projections appear reasonable and include operational costs of new facilities and early repayment of certain outstanding debt. The inclusion of early debt repayment and large capital expenditures provides additional financial flexibility.

Like all tourism- and second-home-based economies, the district is vulnerable to economic downturns, changes in vacation and recreational trends, and weather conditions. Current visitor data is mixed; annual skier visits declined in the 2005-06 season, and hotel occupancy rates remain below average. However, revenue per room and average daily room rates increased for the 2005-06 season compared to the 2004-05 season. The district and town and the town of Telluride have made efforts to diversify the tourism base by hosting activities throughout the year.

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