Fitch Rates Regional Transportation District, Colorado $83.7MM COPs 'A'.

SAN FRANCISCO -- Fitch rates the Regional Transportation District, Colorado's (RTD) $83.7 million certificates of participation (transit vehicles project) series 2005A 'A'. The certificates will be sold competitively on April 27. The Rating Outlook is Stable. Public Financial Management serves as the district's financial adviser.

Fitch also affirms the following ratings for RTD:

-- $467.3 million outstanding sales tax revenue bonds 'A+';

-- $291 million outstanding certificates of participation (COPs) 'A'.

The Rating Outlook for these ratings also is Stable.

The ratings reflect RTD's strong underlying credit fundamentals, particularly as sales tax revenue recovers from recent declines. Also, both debt types have a sound legal structure. RTD's debt service coverage for both sales tax bonds and certificates of participation is strong and remained so through two consecutive years of sales tax declines. Other positive credit features include the economic base's sound underpinnings and good management practices, along with a willingness to increase fares and conservative policies regarding debt issuance. These actions partially offset the system's low farebox recovery ratio and pattern of over-estimated sales tax performance. RTD has been an active debt issuer in the past few years, financing the sizable Southeast Corridor rail line, and will become more visible with the recent authorization of a sales tax rate increase and a large system expansion. Lastly, the rating considers the uncertainty inherent with implementation of an expanded transit network.

Certificate proceeds will be used to purchase 29 transit vehicles for current and future use. Financing at this time is in advance of prior plans but takes advantage of an existing purchase agreement and current favorable interest rates. These certificates are secured by lease payments made by the district for use of this vehicle group. Prior leases were done as a master lease, with all vehicles financed through six certificate transactions covered by one lease. Fitch views the new, single lease structure as strongly as the master lease, because the amount of vehicles under the 2005 lease represents a sizable share of the district's total fleet, creating as strong an incentive to appropriate as under the master lease.

Sales tax bonds are secured by a first lien on the district's 0.6% sales tax, collected over a large and diverse area that includes Denver and much of its suburban surroundings. Sales tax revenue returned to growth in 2004 (calendar year) based on unaudited figures, rising 5.5%, following two years of declines. The 2004 figure now is only 1.2% below the 2001 peak. Nonetheless, the two years' losses, totaling 6.3%, indicate the tax's vulnerability to recession, as well as strong retail competition in the greater Denver area. Sales tax performance had been dramatically strong through 2000.

Current and projected debt service coverage is high and remained so even during the declining years. Pledged revenue in 2004 ($222.0 million) covers maximum annual bond debt service after this refunding ($37.6 million) a healthy 5.9 times (x). Including this issue and outstanding COP debt service and interest on commercial paper ($69.2 million), coverage falls to a still high 3.2x. While the current issue reduces coverage levels unexpectedly, all debt remains well protected. Also, the new COP debt service is an acceleration of future costs to take advantage of a below-market purchase price for the vehicle, as well as the current low interest rate environment. The district does not expect to issue any additional debt for current projects, although future issuance will occur for the $4.7 billion FasTracks program approved by voters last November along with a sales tax rate increase to 1% from 0.6%, effective Jan. 1, 2005. Revenue generated by the additional 0.4% sales tax rate does not secure any outstanding sales tax revenue bonds.

Fitch notes RTD's history of incorporating optimistic sales tax projections in its planning and budgeting but acknowledges lower growth projections incorporated into more recent documents. Fitch's concern over the projections is partially offset by district management's monitoring of sales tax collections and ability to adjust budgeted spending in response to recognized shortfall. Measures taken include delaying or eliminating capital projects, making service adjustments, and restructuring fares. The latter has been done twice in the past three years. The most recent fare increase, effective Jan. 1, 2004, is producing good revenue growth and did not deter ridership as evidenced by a 5.5% gain in revenue boardings, bringing ridership to 1.2% below the 2001 peak. The 2004 gain is the first in three years, likely reflecting economic improvement in the Denver regional area.

The district provides primarily bus service and 15.8 miles of rail. The Southeast Corridor project will add 19 rail miles. The project cost is estimated at $879 million, and the district has a $525 million federal full funding grant agreement. The remainder of the cost primarily comes from existing debt. The FasTracks program calls for a major system expansion over 12 years, including 119 miles of new rail lines, 18 miles of bus rapid transit, additional parking and stations, and improvements to Denver's Union Station. Voters authorized $3.477 billion in sales tax bonds as part of the sales tax increase. RTD expects to finance the program through a combination of sales tax bonds, certificates of participation, a TIFIA loan, and short-term debt. The system has a low farebox recovery rate, relying instead on excess sales tax revenue to cover operating costs. On average, the farebox ratio has met RTD's stated 20% goal but is below national averages. The recent fare restructurings, current weak sales tax performance, and operating cost containment should act to increase this figure.