Fitch Affs Indianapolis (IN) Local Pub Improv Bnd Bnk's Fall Creek Proj Bnds at 'AA-'; Outlk Stable

As part of its continuous surveillance effort, Fitch Ratings takes the following rating action on the following Indianapolis Local Public Improvement Bond Bank (the bond bank) outstanding bonds:

--$11.6 million, series 2004E (Fall Creek project) bonds, affirmed at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are limited obligations of the bond bank which, under Indiana law, is empowered to buy and sell securities of 'qualified entities' such as the City of Indianapolis (the city), Marion County, all special taxing districts in the city, and all entities with tax levies reviewed by the city-county council. The bond bank itself has no taxing power.

The bonds are payable from tax increment (TIF) revenues generated within the city's Consolidated Fall Creek Allocation Area (the district). Bonds are additionally supported by a cash funded debt service reserve fund and a city moral obligation pledge to replenish a draw on the reserve.

KEY RATING DRIVERS

CITY MORAL OBLIGATION PLEDGE: As the city's moral obligation is commonly used to finance city projects, it is given significant weight to the rating. Fitch rates the city's general obligations 'AAA'.

REVENUES DERIVED FROM SMALL PROJECT AREA: TIF revenues are derived from a small, residential area of the city with relatively weak economic profile.

ADEQUATE COVERAGE FROM TIF REVENUES: Debt service coverage from TIF revenues remains adequate although it has declined due to a recent reduction in assessed value from the implementation of the circuit breaker legislation.

RESERVES PROVIDE ADDITIONAL LIQUIDITY: Cash-funded debt service reserve fund and funded stabilization reserve equal to maximum annual debt service (MADS) provide financial cushion.

WHAT COULD TRIGGER A RATING ACTION

CHANGE IN CITY'S GO RATING: Changes in credit quality of the city could affect the value of the moral obligation pledge.

CREDIT PROFILE

Indianapolis created this 160-acre TIF district on the northeast side of the city as a mixed-income residential neighborhood. The district is almost entirely residential, and includes 390 homes. An additional phase has been added to the development but the new homes are not part of the TIF district. The city reports no foreclosures within the TIF district supporting the bonds and tax collection rates are good.

Construction in the district is complete and incremental assessed valuation (AV) has been well in excess of original projections. However, changes in Indiana law under HEA 1001 have resulted in reduced taxable AV and have capped future tax rates, yielding future debt service coverage to about what was originally estimated. Coverage equaled a strong 1.81 times (x) in 2010 but dropped to 1.43x in 2011 due to the phasing in of the circuit breaker. Projected coverage on MADS from fiscal 2012 revenues is 1.35x in 2016. Offsetting this risk to some extent are a fully-funded debt service reserve and an additional stabilization reserve that itself also fully covers MADS.

In the event TIF revenues prove to be insufficient, resulting in a draw on the debt service reserve fund, the chairman of the bond bank will certify the deficiency to the city-county council of the City of Indianapolis and Marion County by Dec. 1 of each year. The city-county council may, at its discretion, appropriate sufficient funds to restore the debt service reserve to the required level under the indenture.

Fitch's rating of 'AA-' is heavily supported by the city's moral obligation to restore any draws on the debt service reserve, given that this is a standard component of the city's capital project financing practices. However, Fitch also recognizes that this project covers a limited geographic area with a small population as compared with other projects financed by the city using its moral obligation.

For information about the city's overall credit quality please see Fitch Release 'Fitch Affirms Indianapolis Bond Bank Multipurpose Bonds 'AAA', dated Dec. 21, 2011, available at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'Rating Guidelines for Moral Obligations', (May 24, 2011).

Applicable Criteria and Related Research:

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

Rating Guidelines for Moral Obligations

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=633029

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

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