Fitch Rates Mountain Village Metro District, Colorado's $5.8MM GOs 'A-'.

AUSTIN, Texas -- Fitch Ratings assigns an 'A-' rating to Mountain Village Metropolitan District, Colorado's (the district) $5.8 million general obligation refunding bonds, series 2005. The bonds will be sold through negotiation by Piper Jaffray & Co. on or about Sept. 7. Additionally, Fitch affirms the 'A-' rating on the district's $24.7 million in outstanding general obligation bonds. The Rating Outlook is Stable.

The rating reflects the district's high property values, sound development history, and prudent financial operations. Continued development has reduced reliance on major taxpayers to a moderate level. However, as a resort and second-home area, the district's tourism-based 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 affordable given the area's affluence. The district is considering issuing about $9 million in remaining authorized but unissued debt for a parking structure within the next 12 months.

The district encompasses 2,072 acres near the town of Telluride and is coterminous with the Town of Mountain Village. The district is a luxury second-home and tourism-based economy that has exhibited strong development to date. Assessed value gains have been sizable, averaging 15% annually since fiscal 2000, and a gain of more than 20% is estimated for fiscal 2006. The tax base includes a high-end resort and spa that recently changed hands, timeshare units and condominiums, single-family and duplex homes, and commercial and retail business. Dependence on major taxpayers is now average, having decreased from more than 20% in fiscal 2002 to about 13% in fiscal 2004. Nearly all infrastructure is in place to support full build-out, which could bring population to about 8,000, up from about 1,400 currently. Residential property makes up about 55% of assessed value and commercial represents about 10%. The remainder is vacant land, mostly zoned for residential development. Single-family home sales average $3.5 million, an increase of $1 million from three years ago, and lots nearly $850,000.

Financial operations are sound. Fund balance levels fluctuate but generally are high. Expenditure flexibility exists in the district's significant capital spending. Operating revenues consist primarily of property taxes, tap fees, and beginning in fiscal 2004, contributions from the Mountain Village Owner's Association, which shifted certain property maintenance functions to the district but retains funding responsibility. Reliance on tap fees has decreased annually and is reasonable for a developing entity. The district's multi-year financial projection foresees rebuilding the fund balance, using higher property tax revenue resulting from the projected preliminary gain in fiscal 2006 assessed value and increased parking revenues.

The district and the town are continuing to consider merging. Fitch views the consolidation, if it were to occur, as not affecting the rating, because Colorado law requires that governmental entities remain in existence at least until all outstanding debt is repaid. Also, a merger requires district court approval of a plan detailing how existing debt will be paid and services provided. Most likely, the district will remain in place only to levy taxes for debt service.

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, with annual skier visits rising but hotel occupancy rates below average. The area is difficult to access by means other than air, and the current instability in the airline industry could impact economic performance. However, the district's existing homeownership, high property values, and development to date provide stability. Also, summer activities continue to expand, reducing seasonal fluctuations.

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