Fitch Ratings said it downgrades to BBB-minus from BBB-plus its ratings on the following Howard Bend Levee District, Mo., securities: $19,145,000 million levee district refunding and improvement bonds, series 2005; $5,230,000 (Creve Coeur airport sub-area) levee district improvement bonds, series 2007.

The rating outlook is stable.

The bonds are special limited obligations payable solely from a special levee tax (SLT) against certain benefited properties. The amount of the SLT is proportionate to the benefits conferred upon each parcel. The bonds are also secured by deal-specific, cash-funded debt service reserves funds (DSRF) equal to the IRS standard.

The downgrade reflects the limited cash available for debt service coverage outside of annual collections. While coverage is still sufficient, the diminished cushion and expectation of further drawdown of capital improvement cash provides less protection against downside risk and therefore reduces credit quality.

The district has the authority to levy up to 1.2x coverage for annual debt service between its installment and maintenance levy. It currently levies a total SLT equal to annual debt service (1.0 times [x] coverage).

Both series of bonds display considerable taxpayer concentration with the top 10 payers accounting for at least 70% of total collections. The number of taxpayers obligated to repay both series is also extremely limited.

The district's economy is notably limited with gaming and agriculture representing the majority of economic activity within the district.

Interruption in the timely payment of the SLT by top taxpayers would create a major cash flow disruption, which could apply further downward pressure to the rating.

Further erosion of discretionary cash reserves may be cause for additional rating action.

The district encompasses a 10.4 square mile area 20 miles northwest of St. Louis. It was incorporated in 1987 to protect and reclaim land from wash and bank erosion and water overflow. The district's board is comprised of five district property owners.

Taxpayer concentration is a significant credit concern. Hollywood Casino St. Louis (the casino) is the largest taxpayer for the 2005 series bonds and accounts for 37% of the total STL on those bonds; the top 10 taxpayers account for 70%. The top taxpayer for the series 2007 bonds is a trust which accounts for 18% of the total SLT, and the top 10 comprise 83%. The project subarea associated with the series 2007 bonds does not include the casino. Overall, the SLT is levied on 385 benefited properties associated with the series 2005 transaction and 148 benefited properties associated with the series 2007 transaction.

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