NEW YORK - (Business Wire) During the course of routine surveillance, Fitch Ratings downgrades the rating on the Village of Hodgkins, Illinois' approximately $13.6 million outstanding tax increment refunding revenue bonds, series 2005 to 'BBB' from 'A-'. The Rating Outlook is Stable. The downgrade reflects the volatility of the retail industry and potential for weak sales tax revenues, especially given the current economic decline. The 'BBB' rating reflects the established history of incremental revenue growth generated by the village's redevelopment project area number 1 (TIF area or the district) and solid debt service coverage. Sound district sales, already supported by high tenant occupancy; favorable economic characteristics of the market area; and limited competition, are expected to be further stabilized by the expansion of Wal-Mart, an anchor tenant. The rating also reflects the high although fluid reserves, a very narrow revenue base, and the relatively near-term maturity of the outstanding debt. The Stable Rating Outlook assumes the maintenance of projected coverage ratios and the sustained demand for the district's retail offerings.
The Village of Hodgkins, population 2,134 in 2000, lies 18 miles southwest of downtown Chicago, in close proximity to major roadways. The district consists of the Quarry Shopping Center and adjacent auxiliary facilities. In addition to Hodgkins, the center serves a marketing area consisting of all or portions of 12 surrounding municipalities with above average wealth indicators. Competition throughout the market area is limited.
Anchor stores of the retail center include Wal-Mart and Sam's Club, Target, and Kohl's. A Wal-Mart expansion, anticipated to be completed in April, is expected to further stabilize the center. The center is currently nearly fully occupied. Out-lot facilities include four General Motors automobile dealerships, one of which was awarded a three-year contract earlier this year to provide police cars to the city of Chicago.
The bonds are payable solely from incremental property and sales taxes collected within the district. Debt service coverage has been solid, at 3.3 times (x) in 2007 and 3.6x in 2008. Although the current softening of the retail sector will likely result in a decline in the local share of the incremental sales tax, it is projected that the state share will increase slightly, given that the distribution will be linked to the district's concentration in a revenue pool, which has recently increased. The property tax receipts consist of revenues generated by the combined tax rate of the village and overlapping and underlying jurisdictions applied against the incremental property created value within the district, and incremental property tax collections have increased from 2006 to 2008 on an accrual basis. The district loses incremental property taxes attributable to overlapping jurisdictions after fiscal 2010 but maintains the incremental property tax attributable to the village, as well as the incremental sales taxes. Conservative projections indicate coverage ranging from 2.4x to 3.0x through the maturity of the bonds in 2014, and coverage remains sound even upon the imposition of a stress test that assumes both property and sales tax revenue declines. Additional financial flexibility is available to the district should it opt to utilize its surplus, valued at around $1.6 million in 2007, which has traditionally been rebated to other taxing bodies.
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Fitch Ratings, New York
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com
Barbara Ruth Rosenberg, +1-212-908-0731
Alexandra Knight, +1-212-908-9181
