Fitch Ratings has downgraded Prescott Valley Municipal Property Corp. municipal facility revenue bonds to A-plus with a negative outlook from AA-minus. The action came after a sharp drop in transaction privilege tax revenues in the town of Prescott Valley, and an unexpected increase in payments for debt associated with the recent construction of an events facility in the town, analysts wrote.
The downgrade affects $38.3 million of outstanding parity bonds.
“Fitch also expresses concern regarding management oversight in the wake of an event of default reported by the trustee for the Yavapai County Industrial Development Authority convention center facilities excise tax revenue bonds, Series 2005,” analysts wrote. “According to the trustee, funds required for the Oct. 1, 2007, debt payment were not transferred to the trustee by the payment date. The trustee then drew upon the debt service reserve fund in the amount of approximately $1.17 million to make the required payment.”
The trustee reported the events in a letter to bondholders dated April 18, 2008. According to the trustee, sufficient funds were transferred for the April 1, 2008, debt service payment on the bonds. However, the debt service reserve fund has not yet been replenished.
The town’s monthly financial report for April 2008 indicates that total fiscal 2008 sales tax revenues through March are down 16% from the same period in fiscal 2007. Included in this total are a nearly 12% decline in retail sales tax receipts and a nearly 38% drop in construction sales tax revenues.
“Fitch believes this loss of revenues, largely a byproduct of the severe statewide housing construction slowdown, will pressure the town’s finances over the near term,” the analysts report read.
Prescott Valley, about 90 miles northwest of Phoenix, has experienced explosive population growth in the past decade, increasing from less than 9,000 in 1990 to an estimated 38,000 this year.