Fitch Rates Mountain Village Metro District, Colorado's $6.7MM GOs 'A-'.

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--Aug. 2, 2002

The Mountain Village Metropolitan District, Colorado's (the district) $6,720,000 general obligation refunding bonds, series 2002 are rated 'A-' by Fitch Ratings. The bonds will be sold through negotiation by U.S. Bancorp Piper Jaffray and Kirkpatrick Pettis on or about Aug. 15. The 'A-' rating on the district's $26.5 million in outstanding parity bonds is affirmed.

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 has seen weaker performance resulting from the current reduction in air travel and the nationwide slowed economy. The debt burden is high although affordable given the area's affluence.

Mountain Village encompasses 2,072 acres near the town of Telluride. The district is a luxury home and tourism-based economy that has exhibited strong development to date. Assessed value gains have been sizable, including a 60.7% increase for 2002, the result of building, rising property values, and the statewide change in the valuation's base year. The tax base includes a high-end resort and spa, timeshare units and condominiums, single family and duplex homes, and commercial and retail business. Dependence on major taxpayers now is reasonable. Nearly all infrastructure is in place to support full build-out, which could bring population to about 8,000, up from 1,000 currently. Residential property makes up about 45% of assessed value and commercial represents about 12%. The remainder is vacant land, mostly zoned for residential development. Single family home sales average $2.5 million, and lots $515,000. The home price is about double that of three years ago and lot prices have risen about 60%.

Financial operations are satisfactory. 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 and tap fees. Reliance on tap fees is reasonable for a developing entity, although weaker building and sales and lower tap fees resulted in a sizable operating deficit in 2001. The district's multi-year financial projection foresees rebuilding the fund balance, using higher property tax revenue resulting from this year's large increase in assessed value and by diverting some spending responsibility to the co-terminus town of Mountain Village (the town).

The district and the town are considering merging and dissolving the district. Such action 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. Colorado law is clear that governmental entities cannot dissolve without providing for outstanding financial obligations. Fitch views the consolidation, if it were to occur, as not impacting the rating.

Like all tourism and second-home based economies, vulnerabilities exist to economic downturns, poor weather conditions, and vacation and recreational trends. Mountain Village is difficult to access by means other than air, and the current reduction in flight travel adds to concerns regarding near-term 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.