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Announcement:

Moody's affirms B2 rating on Sparks NV Tourism Improvement District No. 1 sales tax bonds

28 Jun 2012

Outlook revised to stable from negative

New York, June 28, 2012 -- Moody's has affirmed the B2 rating on the City of Sparks, Nevada's Tourism Improvement District No. 1 (Legends at Sparks Marina) Senior Sales Tax Anticipation Revenue Bonds, Series A (the senior STAR bonds); the rating outlook has been revised to stable from negative. The bonds were issued in June 2008 as fixed-rate obligations and are secured by a net 5.0476% sales tax to be collected within the 147.7 acre district, which encompasses a retail shopping and entertainment project adjacent to Interstate 80 in the City of Sparks, Nevada (not rated). The bonds are currently outstanding in the amount of $79.665 million.

RATINGS RATIONALE

Affirmation of the B2 rating reflects Moody's view that the region's lackluster economic recovery combined with still weak but improving project performance will result in sales tax collections that are sufficient to meet scheduled debt service requirements over the near-term. However, over the medium- to longer-term, sales tax collections are projected to be insufficient to keep pace with escalating debt service requirements. Further, according to Moody's assumptions and calculations, the Reserve Fund will become depleted and the bonds are expected to default on June 15, 2024, with an estimated 84% recovery rate thereafter (relative to remaining par) through final maturity in 2028. The presence of a liquid Reserve Fund, which is currently invested by the city with other overnight funds, is expected to provide the supplemental cash needed to pay debt service as scheduled until the projected default date of June 15, 2024. It is noted that the pledged sales taxes are subject to potential statutory impairment and the authorization to collect the taxes sunsets in 2028, leaving few debt restructuring options.

The stable outlook reflects Moody's expectation that collections will be sufficient to cover debt service requirements over the near-term, especially in light of the recent opening of a Lowe's store in the district. However, an uncertain economic recovery will continue to be a drag on otherwise improving project performance over the near-term; accordingly, sales tax growth will be challenged to overcome the combination of already weak debt service coverage and escalating debt service requirements over the longer-term. Debt service coverage is projected at only 0.98 times in 2012, and a stronger 1.05 times in 2013, while scheduled debt service escalates by approximately 2.5% annually through final maturity. These projections include the recent addition of a Lowe's store, which opened in February 2012.

Moody's notes that senior lien debt service was paid in full as scheduled on June 15, 2012 with the assistance of a $27,891 draw on the $7.96 million Reserve Fund, thereby reducing the Reserve Fund balance to approximately $7.93 million. A draw on the Reserve Fund does not constitute a technical default under the senior STAR bond indenture. Replenishment of the Reserve Fund is made from the first available sales taxes received after the draw, which would otherwise have accrued to the Bond Fund for the next scheduled debt service payment.

In the near-term, key rating factors will include our assessment of regional economic indicators, the performance of the retail project itself and, ultimately, the influence that these factors have on the trend of monthly sales tax collections and the magnitude of additional draws on the Reserve Fund. The recent opening of a Lowe's store in February 2012 is expected to have a significant positive impact on tax collections. Longer-term rating factors will include the timing and strength of Reno's economic recovery and the project's ability to retain existing tenants and secure additional commitments from project participants. All of these factors will be important contributors to Moody's assessment of future sales tax collections, the likelihood and timing of default, and the recovery rate to bondholders should default occur.

STRENGTHS:

- Attractive retail project which is well located along Interstate 80 in Sparks

- Some recent improvement in sales tax collections bolstered by the February 2012 opening of a Lowe's store

CHALLENGES:

- Project is only partially completed with uncertain prospects for future phases in the near-term

- Sales tax collections are not projected to keep pace with growing debt service requirements, resulting in projected default on June 15, 2024

- Uncertain economic recovery projected for the region

WHAT COULD CHANGE THE RATING (OUTLOOK) UP

- A sustained trend of higher tax collections that produces coverage at or above the 1.0x

- Further project expansion, including delivery of additional Phase II projects

WHAT COULD CHANGE THE RATING (OUTLOOK) DOWN

- Depletion of the Reserve Fund at a rate faster than currently estimated

- Lackluster sales tax performance, especially in the near-term

- Longer-term adverse changes in the project's tenant mix

Outlook

The stable outlook reflects Moody's expectation that collections will be sufficient to cover debt service requirements over the near-term, especially in light of the recent opening of a Lowe's store in the district. However an uncertain economic recovery will continue to be a drag on otherwise improving project performance over the near-term; accordingly, sales tax growth will be challenged to overcome the combination of already weak debt service coverage and escalating debt service requirements. In the near-term, key rating factors will include our assessment of regional economic indicators, the performance of the retail project itself and, ultimately, the influence that these factors have on the trend of monthly sales tax collections and the magnitude of additional draws on the Reserve Fund. Longer-term rating factors will include the timing and strength of Reno's economic recovery and the project's ability to retain existing tenants and secure additional commitments from project participants. All of these factors will be important contributors to Moody's assessment of future sales tax collections, the likelihood and timing of default, and the recovery rate to bondholders should default occur.

The principal methodology used in this rating was US Public Finance Special Tax Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, and confidential and proprietary Moody's Analytics' information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources.

However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Matthew A. Jones
Senior Vice President
Public Finance Group
Moody's Investors Service
Public Finance Regional Office
One Front Street, Suite 1900
San Francisco, CA 94111
U.S.A
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Dan Steed
Asst Vice President - Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms B2 rating on Sparks NV Tourism Improvement District No. 1 sales tax bonds
No Related Data.
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