Global Credit Research Rating Update 6 AUG 2012 Rating Update: Reno (City of) NV Moody's downgrades to Baa3 from A3 the City of Reno, NV Taxable Senior Lien Room Tax Revenue Refunding Bonds (Retrac-Reno Transportation Rail Access Corridor Project) Series 2006 $8.1 million of debt affected; Negative outlook assigned RENO (CITY OF) NV Cities (including Towns, Villages and Townships) NV Opinion NEW YORK, August 06, 2012 --Moody's Investors Service has downgraded to Baa3 from A3 the rating on the City of Reno, Nevada's Taxable Senior Lien Room Tax Revenue Refunding Bonds (ReTRAC-Reno Transportation Rail Access Corridor Project) Series 2006 outstanding in the amount of $8.1 million. The rating carries a negative outlook. The bonds are secured by a senior lien pledge on a dedicated 1% hotel room tax applied to all accommodations located within a 45 square block area within Reno's downtown. Bond proceeds were originally issued to partially prepay a ReTRAC project loan between the U.S. Department of Transportation (USDOT) and the city as well as fund various reserve accounts. SUMMARY RATING RATIONALE The Baa3 primarily reflects very thin coverage of annual debt service following a trend of significant declines in pledged revenues. The rating also incorporates the narrow pledge of room taxes within a limited geographical area, and a sound legal structure that includes cash-funded reserves available to support level annual debt service requirements. The negative outlook reflects expectations that pledged revenues will remain challenged over the mediumterm and that the city may need to make small draws on the cash-funded supplemental reserve in order to make debt service payments. STRENGTHS -Taxable base includes majority of region's largest hotels and tourist attractions -Multiple reserve funds available to support debt service amid declines in pledged revenues CHALLENGES -Narrow pledge of passive and economically-sensitive room taxes -Expected slow, uneven economic recovery DETAILED CREDIT DISCUSSION DEDICATED SPECIAL TAX PLEDGE WITHIN LIMITED TAXABLE BASE; ECONOMIC DOWNTURN RESULTS IN DECLINING REVENUES The pledged revenues consist of hotel room tax revenues, net of collection fees, generated from a 1% room tax rate applied to all accommodations (except for rentals of 28 days or longer) in a 45-square block area of Reno's (GOLT rated Aa3/NEG) downtown, also known as the "Police Protection Area". The city began levying the pledged room tax revenues in January 1999; these monies may only be used for the Reno Transportation Access Corridor (ReTRAC) project or other grade separation projects. The hotel base generating the pledged revenues is limited and concentrated with roughly one-third of the rooms available within Washoe County (GOLT rated Aa2). The ten largest hotels in the Police Protection Area, many of which are the major casino hotels in Reno, comprise 87% of the total rooms available. Due to the national economic downturn which was felt much more acutely in the Reno area, pledged revenues declined substantially, resulting in coverage of maximum annual debt service falling to 1.08 times as of fiscal 2011. Significantly, unaudited results for fiscal 2012 reflect a still challenged economy and visitor industry as pledged revenues declined another 6.5% which results in coverage of MADS at only 1.01 times. Since 2002 pledged revenues have only increased twice, in years 2005 and 2006, and even those years were followed by substantial declines. Specifically, pledged revenues peaked in fiscal 2006 and then declined by a sizable 41.2% through fiscal 2011 amid a weakened economic environment. The Reno Sparks Convention and Visitors Authority's recent 2013 forecast expects some improvement in room collections and the city is budgeting a modest 2.0% increase in pledged revenues which should result in coverage of MADS leveling off at current levels. LOCAL ECONOMY REMAINS IN RECESSION; TOURISM FACES COMPETITIVE PRESSURES The City of Reno (Aa3/NEG) is located in the northwest portion of the state in Washoe County. The city's major employers are a mix of stable entities including the school district, higher education and a large healthcare provider as well as gaming, resort and leisure entities. As of May 2012 the city's unemployment rate has continued its steady improvement but still remains above average at 11.6%, which was above the nation (7.9%) and approximated the state (11.6%). Broad economic downturn has negatively impacted tourist visits to the area. The local hospitality and gaming activities (a large portion of which are situated within the Police Protection Area) draw visitors from around the Western Coast, but Reno also faces longterm competition from Native American gaming facilities and other cities with notable gaming attractions. SATISFACTORY LEGAL PROVISIONS Legal provisions for the current offering are sound with a debt service reserve requirement equal to maximum annual debt service (MADS) and an additional bonds test equal to 1.5 times MADS. Importantly, the ordinance also provides for a supplemental reserve equal to MADS to be funded from 50% of remaining revenues after paying debt service. The supplemental reserve is currently fully funded with cash equal to MADS and would provide substantial cushion in the event coverage falls below sum-sufficient. WHAT COULD MAKE THE RATING GO UP (Remove Negative Outlook) - Trend of increased pledged revenues resulting in improved coverage of maximum annual debt service WHAT COULD MAKE THE RATING GO DOWN - Sustained debt service coverage levels below sum-sufficient - Depletion of reserve funds KEY STATISTICS 2011 Pledged hotel tax revenues: $682,000 2012 unaudited pledged hotel tax revenues: $637,388 Coverage of peak debt service (in 2034) by FY 2011 revenues: 1.08 times Coverage of peak debt service (in 2034) by unaudited FY 2012 revenues: 1.01 times Average annual growth rate in pledged revenues, 2007 to 2011: -8.2% Largest single year decline in pledged revenues and percentage: 2009, 25.8% Additional bonds test: 1.5 times maximum annual debt service by the average of the two prior years' pledged revenues Debt service reserve fund requirement: Equal to maximum annual debt service The principal methodology used in this rating was U.S Public Finance Special Tax Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology. REGULATORY DISCLOSURES The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com. For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, confidential and proprietary Moody's Analytics information. Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating. Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent thirdparty sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process. Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests. Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter. Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery. Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information. Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Analysts Dan Steed Lead Analyst Public Finance Group Moody's Investors Service Patrick Liberatore Backup Analyst Public Finance Group Moody's Investors Service Bryan A. Quevedo Additional Contact Public Finance Group Moody's Investors Service Contacts Journalists: (212) 553-0376 Research Clients: (212) 553-1653 Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 USA CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S ("MIS") CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. Copyright 2012, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc. (together, "MOODY'S"). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. Under no circumstances shall MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY'S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY'S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER. MIS, a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Shareholder Relations - Corporate Governance - Director and Shareholder Affiliation Policy." Any publication into Australia of this Document is by Moody's affiliate Moody's Investors Service Pty Limited ABN 61 003 399 657, which holds Australian Financial Services License no. 336969. This document is intended to be provided only to wholesale clients (within the meaning of section 761G of the Corporations Act 2001). By continuing to access this Document from within Australia, you represent to Moody's and its affiliates that you are, or are accessing the Document as a representative of, a wholesale client and that neither you nor the entity you represent will directly or indirectly disseminate this Document or its contents to retail clients (within the meaning of section 761G of the Corporations Act 2001).