Fitch Rates District of Columbia TIF Revenue Bonds 'A+'; Outlook Stable

Fitch Ratings assigns an 'A+' rating to the following District of Columbia tax increment revenue refunding bonds:

--$53.315 million series 2012 (Gallery Place Project).

Additionally, Fitch affirms the 'A+' rating on the district's outstanding tax increment revenue bonds series 2011 (City Market at O Street).

The Rating Outlook is Stable.

The bonds are expected to sell via negotiation on or about June 6, 2012. Bond proceeds will be applied toward the current refunding of the district's series 2002 Gallery Place Project tax increment revenue bonds.

SECURITY

The bonds are special obligations of the district, secured by a lien on and pledge of tax increment revenues from the Gallery Place Project area, and to the extent such revenues are not sufficient to cover debt service, payable from available increments from the district's Downtown TIF Area, the basis for the rating.

KEY RATING DRIVERS

SOLID DEBT SERVICE COVERAGE FROM THE DOWNTOWN TIF: The 'A+' rating reflects the solid debt service coverage provided by available incremental revenues produced by the district's Downtown TIF area and the limitation on future leveraging.

DOWNTOWN TIF AREA IS SUBSTANTIAL: The Downtown TIF area represents a significant portion of the district's central business district. Growth in the Downtown TIF area's real property assessed valuation, which is the basis for much of the increment generated, has been substantial. While assessed value (AV) declined for fiscal 2011, growth is expected in fiscal 2012.

LIMITATION ON ADDITIONAL LEVERAGE: Additional leveraging of the Downtown TIF revenues requires 3 times (x) coverage of projected maximum annual debt service (MADS); this test is stringent among municipal credits of this type that are rated by Fitch.

LOW TAXPAYER CONCENTRATION: Concentration among the top taxpayers in the Downtown TIF area is relatively low.

CREDIT PROFILE

The 'A+' rating on the bonds reflects the solid coverage provided by the available incremental revenues produced by the Downtown TIF area, the strength of the Downtown TIF area, and the limitation on future leveraging of bonds backed by Downtown TIF incremental revenues. Bond proceeds will refinance the district's TIF revenue bonds issued in 2002 for the Gallery Place Project. Debt service on the series 2012 bonds is intended to be paid from incremental revenues in the Gallery Place TIF area, a portion of the larger Downtown TIF area; however, available increments from the established Downtown TIF provide ultimate security for the bonds and are the basis for the rating.

The district's Downtown TIF area produces incremental revenues from both real property and sales tax sources. Real property tax and PILOT revenues in excess of the amounts generated by AV as of Jan. 1, 1999 (exclusive of revenues deriving from the Special Real Property Tax levied for the district's general obligation debt service and incremental revenues associated with established footprint TIFs within the Downtown TIF) are available to the series 2012 bonds on a subordinate basis to the district's 2002 Mandarin Oriental bonds and on parity with several other district projects. Sales tax revenues in excess of those generated in calendar 1999, exclusive of revenues dedicated to bonds issued for the district's Convention Center and incremental revenues associated with established footprint TIFs within the Downtown TIF, are similarly available to the series 2012 bonds. Fitch notes that budgeted reserve funds set aside annually by the district as additional security for the Gallery Place and Mandarin Oriental bonds issued in 2002 (which were not rated by Fitch) will not be available to the series 2012 bonds now offered. Additionally, the series 2012 bonds will not be sold with a debt service reserve fund.

The Downtown TIF area comprises 2,500 acres and encompasses the city's central business district. The area includes over 13,000 taxable properties, the majority of which are commercial in nature, and the assessed valuation of properties in the area represented 32% of District-wide taxable AV in 2011. Assessed valuation growth over the base year has been significant, and the incremental assessed valuation for the fiscal 2011 was 230% of the base level. While assessed valuation in the Downtown TIF district for fiscal 2011 declined by 13%, the district currently projects growth of 7.2% for fiscal 2012. Sales tax incremental value for fiscal 2011, which represented approximately 53% of the base year level, fell 5% from the prior year but is assumed to grow moderately going forward. The real property tax increment equals about 77% of total available revenues, with the sales tax increment the remaining 23%. The concentration among the top taxpayers in the Downtown TIF area is relatively low.

Available incremental revenues provide solid debt service coverage of projected MADS (occurring in 2021) on all obligations secured by the Downtown TIF. Available fiscal 2011 Downtown TIF incremental revenues cover projected MADS by approximately 17x; an additional bonds test requiring 3x coverage of projected MADS serves to limit additional leveraging. While provisions allow for the carving out of portions of the Downtown TIF area for future projects to be supported by incremental revenues generated, such carve-out requires meeting a dilution test. In addition, tax increment revenue bonds are included in the calculation of compliance with the district's policy of limiting debt service to 12% of expenditures, providing an additional practical constraint. No additional carve-outs are currently contemplated.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 15, 2011;

--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 15, 2011.

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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Contacts:

Fitch Ratings
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Media Relations, New York
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Sandro Scenga, [phone]
Media Relations, New York
[e-mail]
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Primary Analyst:
Kenneth T. Weinstein, [phone]
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Amy Laskey, [phone]
Managing Director
or
Committee Chairperson:
Laura Porter, [phone]
Managing Director