News Column

Fitch Affirms Florida Adjustable Rate Everglades Restoration Bonds State Liquidity at 'F1+'

August 21, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms the 'F1+' short-term rating on the following State of Florida Department of Environmental Projection adjustable rate documentary stamp backed bonds, for which the state provides liquidity upon a failed remarketing:

--$74.29 million Everglades Restoration revenue bonds, series 2007 A-B (multi-modal).

SECURITY

The obligation of the treasury under the SBPA is a limited obligation of the state of Florida, payable from available liquidity in the state treasury. The bonds are secured by a portion (63.31%) of collections of the state documentary stamp tax, which is levied primarily on real estate transfers, after payment of an 8% general fund administrative fee and $10 million in collection/enforcement fees.

KEY RATING DRIVERS

LONG-TERM CREDIT QUALITY: The long-term rating on the documentary stamp tax backed bonds is 'A' with a Stable Outlook, reflecting adequate debt service coverage by an economically sensitive revenue stream derived from real estate and other transactions.

AMPLE LIQUIDITY: The short-term rating is based on the liquidity support provided by the State of Florida Department of Financial Services, Division of the Treasury, in the form of a revolving standby bond purchase agreement. The state, rated 'AAA' by Fitch, has ample liquidity to meet tenders on variable rate debt that has not been remarketed. Funds are conservatively invested and provide very high coverage of outstanding variable rate debt.

LIMITED TERMINATION RISK: There are limited instances in which the state may terminate its obligation to provide liquidity. The standby requires downgrade by two rating agencies to 'BBB' or lower before termination of the liquidity facility with a mandatory tender and below investment grade for a termination without mandatory tender.

CREDIT PROFILE

Liquidity for bonds in variable rate mode that are tendered but not remarketed is provided by the Florida treasurer through a standby bond purchase agreement that is sized to cover $100 million in principal plus 35 days interest computed at the maximum rate of 12%. The SBPA provides for timely notification of any failed remarketing to enable the state treasurer to purchase any bonds tendered and not remarketed, with legally available funds.

AMPLE LIQUIDITY

The treasurer is responsible for investing all general revenue, trust, and agency funds of the state, excluding the state pension funds, which are invested by the State Board of Administration. The treasurer maintains seven investment portfolios that reflect different investment priorities. The internal liquidity portfolio, which is used for immediate cash needs of the state, maintains a minimum of $2 billion in highly-liquid investments plus a margin of safety calculated based on the highest quarterly and highest weekly disbursements over a five year period. As of June 30, 2014, the Treasury held $21.5 billion, of which $8.7 billion was in the internal liquidity portfolio. This portfolio is invested conservatively in highly rated securities, with more than half invested in government and agency securities. These funds are more than sufficient to meet the cash needs of the state including any potential tenders of the bonds. The state does not provide internal liquidity on any other debt.

LIMITED LIKELIHOOD OF TERMINATION

The 'F1+' short-term rating reflects both the ability of the state treasurer to provide timely payment of the purchase price upon optional or mandatory tender in the event of a failed remarketing of the bonds and the likelihood that the liquidity facility will terminate without a mandatory tender due to deterioration of the bonds' long-term credit, as is expressed in the long-term rating. The short-term rating takes into account both the strength of the liquidity provider as well as the underlying credit quality of the bonds. With an 'A' long-term rating on bonds, Fitch's criteria indicate a short-term rating of 'F1'; however, in this case the rating of 'F1+' reflects a number of factors, including the minimal likelihood that the long-term rating will fall below investment grade and cause a termination without mandatory tender, and the state's history of making legislative and programmatic change to support its ratings.

BONDS PAID FROM DOCUMENTARY STAMP REVENUES

Everglades Restoration revenue bonds, which since 2006 have had a parity lien on the documentary stamp tax revenues, fund the acquisition and improvement of land and water areas, including water supply and flood protection, under a $13.5 billion Everglades Restoration program, a joint federal, state, and local endeavor. Everglades Restoration bonds were approved by constitutional amendment in 1998, at that time payable from a junior lien on pledged documentary stamp tax revenues. In 2006, the state legislature elevated the Everglades Restoration bond lien to parity status with the Preservation 2000 and Florida Forever bonds.

For additional information see 'Fitch Rates $189MM Florida Environmental Protection Revs 'A'; Outlook Stable', dated Aug. 21, 2014

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;

--'U.S. State Government Tax-Supported Rating Criteria', dated Aug. 14, 2012;

--'Rating U.S. Public Finance Short-Term Debt', dated Dec. 9, 2013.

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

Rating U.S. Public Finance Short-Term Debt

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724680

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=855274

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Karen Krop

Senior Director

+1-212-908-0661

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Laura Porter

Managing Director

+1-212-908-0575

or

Committee Chairperson

Douglas Offerman

Senior Director

+1-212-908-0889

or

Media Relations:

Elizabeth Fogerty, New York, +1 212-908-0526

Email: elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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