Fitch Ratings assigns an 'A+' rating to the following City of Orlando, Florida Community Redevelopment Agency's (CRA) revenue bonds:
--Approximately $18 million tax increment revenue bonds (downtown district), series 2009A;
--$6 million tax increment revenue refunding bonds (downtown district), series 2009B;
--$47 million taxable tax increment revenue bonds (downtown district - direct subsidy Build America Bonds), series 2009C.
At the time of issuance and depending on market conditions, the City may forego the issuance of the Series C taxable Build America Bonds and instead issue additional tax-exempt bonds.
The bonds are scheduled to sell via negotiation on or after August 18. The Rating Outlook is Negative.
In addition, Fitch affirms the 'A+' rating and revises the Outlook to Negative from Stable on $10.5 million in outstanding 2002 and 2004 parity bonds, which are expected to be refunded and defeased with CRA cash on hand, respectively, concurrent with the 2009 issuances.
The 'A+' rating is based on the mature, diverse project area with good long-term prospects for tax base growth despite recent declines, high coverage of maximum annual debt service (MADs) from pledged revenues, and good legal protections for bondholders. The Negative Rating Outlook reflects Fitch's concern that MADs coverage may be substantially eroded over the next few years if the city decides to use parity bonds to supplement tourist development tax (TDT) revenue to fulfill its commitment for a new performing arts center (PAC.) The additional bonds are being considered because of sharp declines in TDT revenue, which initially was expected to provide a portion of the city's share of the PAC project, which is being developed through an interlocal agreement with Orange County. Fitch may downgrade the bonds if MADs coverage falls substantially as a result of sizable additional bond issuance, weak economic performance, or a combination of both.
Bonds are payable from an irrevocable gross lien on pledged tax increment revenues and investment income. The additional bonds test for parity debt requires pledged revenues in the current fiscal year to cover MADS 1.5 times (x). Senior lien MADs coverage in fiscal 2010 is projected to be a strong 4.4x, incorporating the current offering and assuming 100% tax-exempt debt. Agency-provided projections foresee a maximum $110 million additional tax-exempt parity bond issuance in fiscal year (FY) 2010 for the PAC and assume further declines in incremental value in FY 2011. Under these conditions, MADs coverage drops considerably to 1.6x. Fitch believes that this near-full leveraging of pledged revenue would be inconsistent with an 'A+' rating.
The downtown district encompasses much of Orlando's business core, encompassing 1,620 acres with total taxable assessed value (TAV) of $2.8 billion. Following several years of dramatic growth (incremental value grew at an average annual rate of 26% between FYs 2006 and 2009), TAV is estimated to decline 4.7% for fiscal 2010. However, incremental tax revenue is expected to decline by a much smaller amount. The tax base is somewhat concentrated with the largest 10 taxpayers constituting 22% of total district valuation and 27% of incremental value. Most of the large taxpayers are office buildings and the city reports the downtown office vacancy rate at 16% for the second quarter of 2009. Additionally, municipal office buildings are located in the district, and the courthouse and library, while tax-exempt, bring activity to the area.
Fitch has an implied GO rating of 'AA+' for the City of Orlando, reflecting its broad and diverse economy that has expanded from its traditional tourism base to include professional and business services, education, health care, and biotech while remaining a world-class tourism destination. The city's unemployment has increased with the current economic downturn, to 10.6% for June 2009 from 5.4% a year prior, and remains in line with the state average.
Bond proceeds will reimburse the agency for or support initial land purchase, design, demolition, site preparation and infrastructure improvements associated with the PAC project, refund and defease the outstanding series 2002 and 2004 bonds, fund the composite reserve requirement at MADs, and pay costs of issuance.
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Contacts:
Fitch Ratings
Kelly McGary, 813-224-0492, Tampa
Rachel A.
Barkley, 212-908-0514, New York.
or
Media Relations:
Cindy
Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com