2008-05-30 23:09:02 -

- Fitch has downgraded to 'B' from 'A-' the rating on the $35 million convention center facilities excise tax revenue bonds, series 2005 (taxable) of the Industrial Development Authority of the County of Yavapai, Arizona. Fitch originally assigned an 'A-' rating to the bonds on Nov. 1, 2005. Bond proceeds were used to construct a 5,000 seat convention and events

center in Prescott Valley and also provided for capitalized interest and a debt service reserve fund. The Rating Outlook is Negative.

Fitch takes this action in response to an event of default reported by Well Fargo Bank, NA serving as trustee. According to the trustee, Prescott Valley Events Center LLC (the borrower) did not transmit funds required for the Oct. 1, 2007 debt service payment on the bonds. The trustee then drew upon the debt service reserve fund in the amount of $1,171,677.90 to make the required payment. The trustee reported these events, along with the borrower's reported failure regarding other obligations (specifically, the filing of both a compliance certificate and an annual audit for the year ending Dec. 31, 2006), 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 been replenished.

Fitch's action also reflects concern regarding declining transaction privilege (sales) tax (TPT) revenues in Prescott Valley in recent months and the inability of the facility to generate any pledged net income that would contribute to debt service payments. Because of these two factors, Fitch has serious concerns regarding the sufficiency of pledged revenues to meet debt service requirements over the near term, at a minimum. Fitch will continue to monitor revenue generation over the coming months and may take additional rating action regarding the series 2005 bonds if necessary.

The bonds are secured by a loan agreement to the borrower, Prescott Valley Events Center LLC, which constructed and operates the multipurpose events facility. Repayment resources include net operating income from the facility (which opened in November, 2006), as well as TPT revenues from the facility and those generated within a designated entertainment district in Prescott Valley. Further repayment support includes TPT revenues from an additional commercial area adjacent to the entertainment district. Fitch's rating relies primarily on this last source, as net operating income has yet to be realized and taxes from the facility and the designated entertainment district have provided insufficient revenue to cover debt service. Total pledged revenue is projected to provide just above one time (x) coverage in fiscal 2009, but coverage could be jeopardized if TPT revenue falls below projected levels. Town-wide sales tax revenue is down 16% in fiscal 2008 through March from fiscal 2007 levels.

Prescott Valley Events Center LLC was formed by Global Entertainment Corp. (GEC) and Prescott Valley Signature Entertainment LLC (PVSE) to develop, construct, and operate the project. GEC is a sports entertainment and media company that operates in small to mid-sized markets and also owns the Western Professional Hockey League. PVSE is wholly owned by Fain Signature Group which is a privately held company that is a large commercial, industrial, and residential developer in Yavapai County.

The project is located in the Town of Prescott Valley, Arizona, roughly 90 miles northwest of Phoenix. In keeping with the master plan to develop a town center in Prescott Valley, this events center anchors a designated entertainment district, which is comprised of numerous retail and restaurant concerns.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings, Austin
Steve Murray, 512-215-3729
Jose Acosta, 512-215-3726
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