Fitch Rates Mountain Village Metro District, Colorado's $8.9MM GOs 'A-'.

SAN FRANCISCO -- Fitch Ratings assigns an 'A-' rating to the Mountain Village Metropolitan District, Colorado (the district) $8.9 million general obligation (GO) bonds, series 2006A. The bonds will be sold through negotiation with Piper Jaffray & Co. and D.A. Davidson & Co. on or about August 2. Additionally, Fitch affirms the 'A-' rating on the district's $28.8 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. Bond proceeds will be used to acquire and construct a public parking facility to be built in connection with a hotel development project and will provide 102 public spaces with an additional 80 spaces funded by the hotel for its use. The garage will be managed by the district and is expected to open along with the hotel in 2009.

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. The district is planning to issue its remaining $14 million bond authorization in December 2006 for the construction of a recreation center.

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 14.4% compounded annually from 2000 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.

In order to more efficiently deliver services to its residents, the district and town are seeking to merge, which is subject to voter approval. This would dissolve the district for all purposes except levying the ad valorem property taxes to pay debt service on these and other outstanding 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 ended 2005 in a strong position, adding over $1 million to the fund balance resulting in an unreserved fund balance of $2.8 million or 120% of expenditures and transfers. Financial projections for the combined district and town appear reasonable and include operational costs of new facilities and early repayment of certain outstanding debt. Fund balance projections continue to fluctuate with capital expenditures and early debt repayment but average about $4.5 million from 2007-2011.

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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