The bonds are expected to sell in early to mid-March via negotiated sale. Bond proceeds will be used to fund construction of a major league soccer stadium, a portion of the performing arts center, and renovation of the Citrus Bowl.
In addition, Fitch affirms the following ratings:
--Implied general obligation (GO) at 'AAA';
The Rating Outlook is Stable.
The TDT bonds are initially secured by county tourist development tax (TDT) revenues distributed to the trustee each year on
Additional security is provided by two bond funded reserve accounts: a liquidity account (50% of maximum annual debt service - MADS), and a debt service reserve fund (50% of MADS). The indenture also establishes an additional reserve at issuance (the community redevelopment agency (CRA) reserve) of
As a back-up if contract TDT revenues and bond and CRA reserves are insufficient, the city covenants to budget and appropriate (CB&A) in its annual budget, by amendment if necessary, legally available non-ad valorem revenues (covenant revenues) sufficient with other pledged funds to pay debt service on the bonds. The availability of covenant revenues to pay debt service is subordinate to the funding of essential government services and obligations with a specific lien on non-ad valorem revenues. Such a covenant is cumulative to the extent not paid, and continues until all required amounts payable under the indenture have been paid.
KEY RATING DRIVERS
CB&A PROVIDES ULTIMATE SECURITY: The city's pledge to covenant to budget and appropriate serves as the ultimate backstop to bond repayment and the basis for the 'AA+' rating. The pledge is supported by a diverse and extensive covenant revenue base which provides strong coverage of MADS on the city's parity non-ad valorem-secured debt.
HIGHLY LEVERAGED CONTRACT TDT REVENUES: The city intends to pay debt service with contract TDT revenues, which are highly leveraged due to elevated base year levels. Additional contract TDT growth will be required to meet full debt service once ramp-up is completed in 2018. Extensive reserves provide some mitigation but prolonged declines in pledged TDT revenues would eventually deplete reserves and trigger the city's CB&A pledge.
IMPLIED GO RATING: The city's 'AAA' implied GO rating reflects its solid finances, high but manageable debt levels and an expanding and diversifying economic base.
WORLD-RENOWN TOURIST DESTINATION: The city and environs include
STRONG CITY FINANCIAL PERFORMANCE: City finances are well-managed as demonstrated by strong reserves, ample liquidity, a diverse revenue base and conservative budgeting.
STRENGTHENED AND DIVERSIFYING LOCAL ECONOMY: Local economic activity has surged over the past three years with the recovery in tourism. Significant health science-related development provides diversification away from the volatile tourist sector.
ELEVATED BUT MANAGEABLE DEBT: Debt per capita is elevated, but debt to taxable assessed value (TAV) is more moderate. Given no new debt planned and slow amortization, debt levels are expected to remain elevated for some time.
DETERIORATION OF FINANCIAL RESERVES: Significant operating deficits bringing general fund balance below the lower end of the city's fund balance target would be viewed unfavorably by Fitch.
NARROWED COVENANT DEBT COVERAGE: Reduced coverage of covenant debt, either through declines in covenant revenues and/or additional leverage could lead to negative rating action on the city's covenant bonds and the implied GO.
BROAD COVENANT REVENUE BASE
The rating reflects the city's covenant to budget and appropriate pledge which serves as the ultimate backstop for debt service. Covenant revenues, which are derived from the city's two major unrestricted funds (the general fund and utility services tax fund) are extensive and diverse. Covenant revenues totaled over
SOLID COVERAGE OF COVENANT DEBT SERVICE
The city's covenant bond ordinance limits issuance of additional debt either directly secured by covenant revenues or the CB&A pledge serves as a backup security and the primary revenue source fails to provide adequate debt service coverage. Covenant debt service is restricted to no more than 25% of covenant revenues if MADS falls within the first six years after issuance or 35% of covenant revenues if MADS occurs beyond the first six year following issuance. The proposed contract TDT bonds comfortably meet the requirements of the additional bonds test.
LEVERAGED AND VOLATILE PRIMARY REPAYMENT SOURCE
The city intends that contract TDT revenues will be the primary source for bond repayment. Contract TDT revenues represent an incremental revenue stream generated only when TDT revenues exceed the base amount. The contract TDT is significantly leveraged and highly volatile. Base year levels equaled an exceptionally high 90.6% of total TDT revenues in fiscal 2013. An escalating base amount increasing by 2% each year amplifies the risk of a contract TDT revenue shortfall.
Estimated fiscal 2014 contract TDT revenues of
STRONG FINANCIAL MANAGEMENT
City finances are well-maintained characterized by sizable reserve levels, tight controls over spending and favorable actual performance to budget. Fiscal 2012 unrestricted general fund balance totaled
The city reported four consecutive years of operating surpluses between fiscals 2009 and 2012 which grew the city's total general fund balance by
PLANNED DRAWDOWNS OF LARGE BALANCES
Officials decided to tap a portion of recently built up general fund reserves in fiscal 2013, budgeting a
The fiscal 2014 budget proposes an additional
HIGH DEBT COSTS MITIGATED BY LARGE TDT-SECURED BOND PRESENCE
City debt levels are moderate when compared with market value but high on a per capita basis at
ADEQUATELY-FUNDED PENSION OBLIGATIONS
The city maintains three separate single-employer defined benefit pension plans (police officers, firefighters and general employees). The general employees defined benefit plan was replaced with a defined contribution plan for employees hired after 1998. The city consistently funds 100% of the required contribution each year. All defined benefit plans are satisfactorily-funded with funding ratios of 71%, 74% and 72% for the general employees, firefighters and police officers' plans, respectively assuming Fitch's 7% discount rate.
For post-employment benefits (OPEBs), the city provides two single employer plans; a defined benefit plan and a defined contribution retiree healthcare expense reimbursement option. General employees hired after 2006 are offered an implicit subsidy while fire and police employees hired after 2006 must participate in the defined contribution plan. The city established an OPEB trust and contributes 100% of cost each year. The funding ratio is low at 16% assuming the 7% discount rate but is higher than funding levels of many other municipalities.
The local economy continues to expand and diversify. Employment levels have increased steadily since 2011 and were up 2.2% in
Taxable values gained 3.4% in fiscal 2014, the second consecutive increase after three years of decline, attributable to a combination of higher residential values and reduced homestead exemptions. Median
The leisure and hospitality sector continues to be a major component of the local economy, comprising about 21% of total employment. Disney is the dominant player, employing about 58,000 or about 10% of total county employment. Universal
EXPANDING BIOTECH AND LIFE SCIENCE HUB
Economic diversification has occurred most notably within the education and health services sectors. A growing biotechnology and life sciences cluster is centered in Lake Nona Medical City, a master planned mixed community within
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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