Fitch Ratings last week stripped the Chesterfield Valley Transportation Development District’s 2006 sales tax bonds of their investment-grade rating as the issuer is expected to tap debt service reserves to fully cover its April payment.

Fitch dropped the district’s transportation sales tax revenue bonds to BB from A-minus. The bonds are repaid with proceeds of a 0.375% sales tax pledge on retail sales within the district.

The rating reflects the pledge of a narrow revenue stream that is economically sensitive and a decline in gross sales figures from projections, analysts said. Sales tax revenue is expected to fall about $120,000 short of what’s needed to cover the April, 2010, debt service payment and reserves will need to be tapped.

The credit’s strengths include a fully funded debt service reserve and the district’s attractive physical location and composition.

“The key rating drivers are the district’s ability to generate adequate sales tax revenue from a retail base with no discernible competitive advantage, and the rate of depletion of the cash-funded debt service reserve if annual sales collections prove inadequate,” Fitch analysts wrote.

If sales tax collections remain flat in 2009, annual revenue will be inadequate to cover debt service through 2015, although reserves will be sufficient to plug the annual shortfalls through 2016.

From 2017 through 2025, the district is required to pay only interest on a bullet maturity in 2026. Assuming no growth, annual revenue projections are estimated to generate adequate excess sales tax revenue to retire the bullet maturity.

The transportation district is a 7.4-square-mile area located along a five-mile corridor of Interstate 64 in western St. Louis County.  As of September 2009, there were 398 retail establishments located within the district.

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