NEW YORK, Mar 07, 2012 (BUSINESS WIRE) –
Fitch Ratings has assigned an ‘AA+’ rating to the following Orange
County, Florida (the county) bonds:
–$18.8 million taxable sales tax revenue refunding bonds, series 2012A;
–$95.8 million sales tax revenue refunding bonds, series 2012B.
The bonds are expected to sell on March 20th via competition. Bond
proceeds will refund certain outstanding sales tax revenue bonds.
In addition, Fitch assigns the following rating:
–Implied general obligation rating of ‘AAA’.
In addition, Fitch affirms the following ratings:
–$289.6 million in outstanding sales tax revenue bonds at ‘AA+’;
–$22.7 million in outstanding capital improvement revenue bonds (CIRB)
at ‘AA+’;
–$61.5 million in outstanding public service tax (PST) revenue bonds at
‘AA+’;
–$833.7 million in outstanding tourist development tax (TDT) revenue
bonds at ‘AA-’.
The Rating Outlook is Stable.
SECURITY
The sales tax revenue bonds are secured by a pledge and lien upon that
portion of the Local Government Half-Cent Sales Tax distributed to the
county.
The CIRB bonds are secured by revenues received by the county from the
State Revenue Sharing Trust Fund in an amount equal to 50% of state
revenue sharing moneys received by the county in the immediately
preceding year.
The PST revenue bonds are secured by a pledge of the PST levied and
collected by the county on the purchase of electricity, gas, water and
fuel oil within the unincorporated areas of the county.
The TDT revenue bonds are limited obligations of the county payable from
pledged revenues. Pledged revenues consist of revenues from the 5% TDT
net of costs for operating, maintenance and promotion of the convention
center, which is capped at the greater of $0.4 million or 1.74% of the
prior year’s TDT collections, net convention center operating revenues,
naming rights revenues, and investment earnings. The county has the
ability to release all or part of the 5th cent pledge upon board
approval, as long as remaining pledged revenues in each of two
consecutive years within a 30-month period equal or exceed 1.5 times (x)
of maximum annual debt service (MADS).
KEY RATING DRIVERS
HIGH AND CONSISTENT RESERVES: The county maintains ample general fund
and other tax-supported reserves, even after planned draw-downs to fund
capital needs. A low and stable tax rate provides the county with
significant revenue raising capabilities.
DIVERSE EMPLOYMENT OPPORTUNITIES: The growing health and education
sector, underpinned by high-wage medical research and biotechnology, has
broadened an economy that was traditionally based in tourism. The
above-average growth rate of wages will help lift county income
indicators, which are currently at or below national levels.
POSITIVE DEBT PROFILE: Non-residents bear a portion of the county’s low
debt burden, as tourism-related revenues service a substantial portion
of the debt. Management has demonstrated its willingness to defer
capital financing in response to a broad-based economic softening.
HEALTHY COVERAGE FOR SALES TAX, CIRB, & PST BONDS: Debt service coverage
is expected to remain ample for the sales tax, CIRB, and PST securities.
SATISFACTORY COVERAGE FROM VOLATILE REVENUES FOR TDT BONDS: The bonds
are secured by an economically sensitive revenue stream. This volatility
is somewhat offset by the area’s position as a world-class tourist
destination. Coverage of debt service remains satisfactory and
bondholders garner additional protections from reasonable legal
covenants and a sizeable renewal and replacement reserve balance.
CREDIT PROFILE
SOUND SALES TAX COVERAGE
Sales tax revenues provide ample MADS coverage, at 4.8x in fiscal 2011
and 4.6x in fiscal 2010, respectively, due to the relatively low
leveraging. Revenues have rebounded, with year-over-year growth each
month since at least October 2010. Fiscal year 2011 revenues increased
7.6% above those of the prior year, and year-to-date fiscal 2012 growth
has equaled 5.4%.
Legal provisions are sound. The additional bonds test requires a lenient
1.35x MADS coverage to issue additional debt. The county will not fund a
debt service reserve account (DSRA), which is an option if pledged
revenues meet or exceed 3.0x MADS.
BROAD EMPLOYMENT BASE WITH A SIGNIFICANT TOURISM COMPONENT
The county’s economy anchors the central portion of the state, as
professional and business services, education, health care, and
biotechnology augment the historically strong tourism sector. The two
leading health care systems (Adventist Health System and Orlando
Regional Healthcare System) together employ 30,700 workers. The Medical
City at Lake Nona embodies the recent growth in the biomedical center
and will benefit from two additional hospitals slated to open by 2013.
Tourism remains a considerable economic force. Walt Disney World is the
county’s largest taxpayer at 7.9% of taxable assessed value (TAV) and
the largest employer (58,000 employees). Eight of the top ten taxpayers,
representing 14.4% of TAV are members of the hospitality industry.
Universal Studios (Universal City Development Partners, Ltd.; rated IDR
‘BBB’ Stable Outlook by Fitch) and SeaWorld Orlando are among the
largest employers at 13,000 and 7,000 employees, respectively. Fitch
takes comfort that the strength of the Disney and Universal brands will
lend some stability to what is traditionally a volatile sector. Tourism
recovered in 2011, buoyed by the opening of Harry Potter World at
Universal Orlando Resort. Fitch believes the presence of Universal and
Disney will assist the county in enhancing its film, television, and
digital media industry.
County wealth levels are around or slightly below state and national
averages, reflecting the substantial employment in the tourism industry.
Income indicators, however, have grown at an above-average annual pace
since at least 2005, reflecting the emerging high-wage biotechnology and
medical research sector. Unemployment has begun to recover, with the
9.4% December 2011 rate well below the 11.4% of the prior year.
Nevertheless, unemployment remains above the national average.
HEALTHY PROSPECTS FOR CONTINUED ECONOMIC EXPANSION
The county stands to benefit from several large-scale projects in
various stages of development within the downtown area. A new performing
arts center under construction and a proposed Orlando Magic
multi-million dollar entertainment/headquarters complex will expand
available entertainment venues. The planned private construction of a
$200 million central commuter rail station, including retail,
residential, and commercial components will leverage the future Sunrail
system.
Finally, a 68-acre digital arts community, the Creative Village
Development, will replace the current Amway Arena and increase the
county’s position within the simulation industry.
Fitch views the county’s long-term prospects for tax base growth as
sound. The 24% tax base decline since fiscal 2009, although substantial,
was not as severe as much of the deterioration throughout the state. The
2.4% decrease in fiscal 2012 has moderated from that of the past two
fiscal years, hinting at a return to stability. The county has revenue
raising flexibility, with a 4.43 millage rate, well below the 10 mill
cap.
AMPLE RESERVE LEVELS
Reserves are consistent and healthy, a hallmark of the county’s sound
financial management. The county had built up reserves for planned
one-time uses. Even after the draw-downs over the past few years, the
unrestricted general fund balance has hovered around 20% of spending.
Fiscal 2010 concluded with an unreserved general fund balance of $142.4
million, equal to 20.3% of spending.
Unaudited fiscal 2011 results preliminarily indicate a $24.8 million
operating deficit (after transfers), equal to less than 4% of spending.
The draw-down represents a portion of the $40 million of the county’s
one-time payment towards the SunRail regional commuter line. The
unrestricted general fund balance (the sum of committed, assigned, and
unassigned fund balance per GASB54) is projected to total $115 million.
Fitch has noted that the county historically has additional unrestricted
balances in other funds that can be used for operations if needed. These
reserves are estimated at a substantial $213 million.
The county does not anticipate a significant utilization of general fund
reserves in fiscal 2012. Fitch considers this quite plausible, given
past performance. Revenue collections for the first quarter of fiscal
2012 are trending above budget and fiscal 2011 year-over-year
collections. Management posits that accelerated timing of collections
mainly contributes to the upward trend. Management stated that
expenditures are tracking around budget.
Traditionally, the county budgets the use of a significant amount of
reserves, with the expectation that they will be offset by carry-overs
from the prior year and conservative budgeting. The amended fiscal 2012
budget incorporates a $16 million increase in unallocated reserves. The
county expects to budget $68.5 million of unallocated reserves in fiscal
2013, an increase from the $49 million incorporated in the fiscal 2011
budget.
WELL-MANAGED LONG-TERM OBLIGATIONS
Debt levels are low at 1.8% of market value and $2,074 per capita.
Two-thirds of the direct debt is secured by tourism related taxes,
partially alleviating the burden on county residents. The county does
not have any variable rate debt exposure. The below-average amortization
rate of 41% of principal retired within 10 years is the only outlier in
an otherwise positive debt profile.
The county’s total fiscal 2012-2016 capital improvement plan totals $1.5
billion, with the largest components including public works ($509
million) and utilities ($731 million). The county has prudently deferred
capital projects in response to past economic declines. There are no
near-term plans for tax-supported debt issuance.
The county’s pension and other post employment benefit (OPEB)
obligations do not pressure the credit. County employees participate in
the state administered Florida Retirement System. The county’s fiscal
2010 contribution equaled 10% of general fund spending, although actual
costs are allocated across funds. The county’s OPEB contribution has
exceeded the annual required contribution (ARC) for at least three
fiscal years, resulting in a net OPEB asset. Accordingly, the county
reduced its fiscal 2011 contribution to $1.8 million, below the $8.5
million ARC and has budgeted around $6 million for the fiscal 2012
payment. Fitch views overfunding of this long-term obligation as a
credit positive that allows the county to reduce payments at times.
SOUND CIRB COVERAGE INCLUSIVE OF GUARANTEED ENTITLEMENTS
MADS coverage has equaled 3.2x in both fiscal 2011 and fiscal 2010.
Fiscal 2012 year-to-date collections have increased by 6.5%. The bonds
are secured by 50% of the moneys distributed to the county from the
state revenue sharing trust fund for counties. These revenues are
derived primarily from sales and uses taxes, the state’s largest revenue
source, and also from cigarette taxes. They are distributed to the
county based on a formula that considers incorporated and unincorporated
county population relative to the state’s and county-generated tax
receipts relative to those of the state. Eligible counties will not
receive a distribution less than the guaranteed and second guaranteed
entitlements, which at $5.4 million equals 1.3x MADS. The additional
bonds test requires that revenues provide a somewhat permissive 1.35x
debt service coverage.
HIGH PST COVERAGE
Debt service coverage is high, at 8x in fiscal 2011. Pledged revenues
have declined by a modest 2.5% from fiscal 2010 to fiscal 2011. The drop
in fiscal 2012 revenues to date has been 11.5%, which management
attributes to weather-driven fluctuations in electricity sales. Coverage
would remain a still high 7.1x should the current downward trend
continue.
The bonds are secured by a 10% tax on sales of electricity, metered or
bottled gas, and water service, and a four-cent per gallon tax on fuel
oil collected by the county in its unincorporated areas. Fitch views the
taxed services as stable in nature. The additional bonds test requires
that revenues provide a lenient 1.35x debt service coverage.
RECOVERY FOR THE VOLATILE TDT REVENUE
County TDT revenue recovery after the 15.4% decline in fiscal 2009 has
been rapid, boosted by the opening of the Harry Potter attraction at the
Universal Theme Park. TDT revenues have increased a significant 23.6%
since fiscal 2009. This figure includes approximately $9 million
attributable to a confidential settlement between the county and
Expedia.com; adjusting for the payment results in still healthy growth
of 17.3% since the recession. Fiscal 2012 revenues have increased
overall, although Fitch expects revenue to continue to show signs of
volatility and for annual growth rates to moderate.
MADS coverage has returned to levels last seen before the economic
downturn. The first five cents of the TDT provided 2.0x coverage in
fiscal 2011, reduced to an estimated 1.9x when excluding the one-time
portion attributed to the legal settlement. This is a healthy
improvement from the 1.7x of fiscal 2010 and is comparable to the 1.9x
of fiscal 2008.
The renewal and replacement reserve (R&RR) fund provide additional
protection for TDT bondholders. The current balance is equal to
approximately $77 million, about $14.5 million above the county’s target
minimum and slightly above 1x MADS. Balances are expected to remain well
within required levels, which are the lesser of $20 million or 3% of
outstanding senior lien bond principal, although the county targets a
balance of 4% of the principal amount of outstanding bonds. The
additional bonds test requires that revenues provide 1.33x debt service
coverage, somewhat permissive for this type of pledged revenue stream.
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
the 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).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
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IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
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WWW.FITCHRATINGS.COM ‘.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
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SOURCE: Fitch Ratings
Fitch Ratings
Sandro Scenga, +1-212-908-0278
Media Relations, New York
sandro.scenga@fitchratings.com
or
Primary Analyst:
Barbara Ruth Rosenberg, +1-212-908-0731
Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Michael Rinaldi, +1-212-908-0833
Senior Director
or
Committee Chairperson:
Amy Laskey, +1-212-908-0568
Managing Director
Copyright Business Wire 2012
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