Summary:

Parkway East Public Improvement District, Mississippi Madison County; General Obligation
Primary Credit Analyst: Kate Choban, Dallas (1) 214-871-1420; kate.choban@standardandpoors.com Secondary Contact: Horacio G Aldrete-Sanchez, Dallas (1) 214-871-1426; horacio.aldrete@standardandpoors.com

Table Of Contents
Rationale Outlook Related Criteria And Research

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Summary:

Parkway East Public Improvement District, Mississippi Madison County; General Obligation
Credit Profile
Parkway East Pub Imp Dist, Mississippi Madison Cnty, Mississippi Parkway East Pub Imp Dist (Madison Cnty) Unenhanced Rating
Many issues are enhanced by bond insurance.

CCC(SPUR)/Negative

Downgraded

Rationale
Standard & Poor's Ratings Services lowered its underlying rating (SPUR) to 'CCC' from 'BBB' on Madison County, Miss.'s series 2005 special assessment bonds, issued by Parkway East Public Improvement District, and removed the rating from CreditWatch with negative implications. The outlook is negative. The lowered ratings reflect our view that the lack shortfall of pledged revenues, combined with the county's lack of willingness to contribute toward deficiencies in revenues, could lead to a furthering downgrade of the rating, or a potential default, within the next year. The rating reflects the moral obligation pledge of the county and the contribution agreement, and subsequent support, between the district and the county. The lowered rating and negative outlook reflects the recent deficiencies in district revenues to cover debt service, and our view of the potential willingness of the county to opt out of additional contributions toward the district, given the terms of the contribution agreement. The bonds issued by the Parkway East Public Improvement District were originally issued for infrastructure improvements in an unincorporated portion of the county. Special assessments will be levied against the property in the district; however, should the assessments collected be insufficient for debt service, provisions within the indenture and the contribution agreement will be enacted and the county will transfer funds to satisfy the deficiency, or any debt service reserve deficiency, should the debt service reserve be utilized. The district further agrees to provide full reimbursement to the county, no later than two years from the date the deficient debt service payment is made, for the amounts the county provides to the trustee, regardless of the source of the district's funds to pay such reimbursement. Under the terms of the contribution agreement, the county does not have to continue making up district deficiencies should the district not perform any of the covenants or obligations of the agreement, which we consider a possibility. Under the contribution agreement, the county has agreed to advance to the paying agent the outstanding amount required to satisfy any potential debt service reserve deficiencies. According to the trust indenture, the county will be notified no later than 20 days prior to the next principal or interest payment date should there be a deficiency in the special assessments collected by the district. Section 6.03 of the trust indenture states that the trustee is authorized and

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Summary: Parkway East Public Improvement District, Mississippi Madison County; General Obligation

directed to establish a revenue fund into which the trustee shall immediately deposit any and all special assessments received from the levy on district lands. In addition, Section 6.04 of the trust indenture outlines the creation and use of a debt service fund, which includes an interest account, a principal account, and a sinking fund account. Section 6.05 outlines the creation of a debt service reserve fund, which according to the prioritization in the trust indenture, the trustee shall transfer amounts on deposit in the revenue fund first into the interest account, then into the principal account, then to the debt service fund, and finally any excess money into the debt service reserve fund. Whenever for any reason on an interest payment date, a principal payment date, a sinking fund payment date or mandatory redemption date, after taking into account the amount of any county contribution, the amount in the interest account, the principal account, or the sinking fund account is insufficient to pay all amounts payable on such bonds, the trustee shall, without further instructions, transfer the amount of any such deficiency from the debt service reserve fund into the interest account, the principal account and the sinking fund account, with priority to the interest account and then, proportionately according to the respective deficiencies therein, to the principal account and the sinking fund account, to be applied to pay any deficient amount of the debt service requirement for the bonds. On Nov. 1, 2013, a notice to bondholders was filed stating that the trustee notified the Board of Supervisors of Madison County of a shortfall in pledged revenues to pay interest on the series 2005 bonds on the Nov. 1 payment date and requested payment under the contribution agreement, which provides for the county's contribution to fulfill any underfunded debt service payment due on the series 2005 bonds. As of March 6, 2014, the county has not provided funds to cover the shortfall on the series 2005 bonds. The last payment received by the trustee by the county was in the amount of $676,514.19 on April 18, 2013 in anticipation of the May 1, 2013 debt service payment due date. Therefore, on Nov. 1, 2013 and in accordance with section 6.05c of the trust indenture, the trustee transferred $501,788.81 from the debt service reserve fund to the series 2005 debt service (interest) account to cover the shortfall on the series 2005 bonds. Pursuant to Section 14.11 of the indenture, any withdrawal from the debt service reserve fund is required to be replenished in 12 equal monthly payments immediately succeeding such withdrawal, but to date the county has not replenished these amounts. As of March 3, 2014, the market value of the debt service reserve fund was $1,429,933 and the balance of the revenue fund (as of March 11, 2014) was $558,065.76. This totals $1,987,998.76 currently available for the next debt service payment due on May 1, 2014 in the amount of $1,441,803.13. Assuming the county continues to not make any further contributions to deficiencies in special assessment revenues, as has been the case since April 2013, and assuming the trustee must continue to use only the currently available amounts in the revenue and debt service reserve funds, the May 2014 debt service payment of $1,441,803.13 (principal and interest) and the Nov. 1, 2014 interest payment of $484,178.13 can be covered, but there will not be enough money left in the accounts to pay principal or interest on the series 2005 bonds past Nov. 1, 2014. While the default on the series 2005 bonds has not yet occurred, we feel that the ability and willingness of the county to not reimburse the revenue or debt service reserve funds, or to cover the current and future shortfalls, based on the contribution agreement, could cause a default on the bonds within the next nine months. The district issued special assessment bonds in 2005 and parity bonds in 2008. On Nov. 1, 2013, the trustee gave notice to all owners that there was a default in the payment of interest on the series 2008A bonds on May 1, 2012, and again on Nov. 1, 2012, as there were insufficient funds available to make a full principal payment on those dates. On

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Summary: Parkway East Public Improvement District, Mississippi Madison County; General Obligation

May 1, 2013, a default in the payment of principal and a portion of the interest on the series 2008A bonds occurred. On Nov. 1, 2013, a default in the payment of interest on the series 2008A bonds occurred. The series 2008A bonds are not rated by Standard & Poor's. However, according to the trustee, because the series 2005 and series 2008 bonds are considered parity debt, there is no legal priority given to the series 2005 bonds in terms of the trustee paying the series 2005 bonds with reserves on hand. Our view of Madison County's credit characteristics include: Very strong budget flexibility; A strong economy and institutional framework; Adequate liquidity, with potentially limited access to external liquidity based on the rating downgrade; Weak budget performance, and Very weak debt and management, with an unwillingness to support the current debt obligations of Parkway East Public Improvement District, of which the county is the obligor.

Outlook
The negative outlook reflects our expectation that we could lower the rating within the next year, given that in the event that if the district does not repay the county for deficiency contributions, the county can opt out of the agreement. Should the district repay the county for funds already appropriated in accordance with the contribution agreement, we could revise the outlook to stable. The negative outlook reflects our understanding that the county, whose last contribution was in April 2013, is unwilling to make additional contributions to supplement upcoming debt service payments, and that the county can completely opt out of the agreement with the district should the county not receive reimbursement from the district for prior deficiency contributions, which is not likely in our view. Should the lack of willingness to support this obligation continue, we believe that there is a possibility of the rating being further lowered, or even defaulting, within the next 12 months. However, should the county begin contributing toward the deficiency in the debt service payments within the next year, we could revise the outlook or rating.

Related Criteria And Research

Related Criteria
USPF Criteria: Local Government GO Ratings Methodology And Assumptions, Sept. 12, 2013 USPF Criteria: Moral Obligation Bonds, June 27, 2006 USPF Criteria: Special-Purpose Districts, June 14, 2007 Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012

Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.

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