News Column

Fitch Rates Florida's $189MM Environmental Protection Revs 'A'; Outlook Stable

August 21, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'A' rating to the following state of Florida Department of Environmental Protection bonds:

--$189.315 million Florida Forever revenue refunding bonds, series 2014A.

The bonds are expected to sell via competitive bid on 18 hour's notice as early as Aug. 25, 2014.

In addition, Fitch affirms the 'A' rating on the following bonds:

--$1.463 billion Florida Forever revenue bonds;

--$227.85 million Florida Everglades Restoration bonds.

The Rating Outlook is Stable.

SECURITY

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

VOLATILE REVENUE STREAM: The pledged revenue stream, which is derived from economically sensitive real estate and other transactions, has historically been quite volatile. Revenues have resumed growth with recovery in the state housing market.

RAPID DECLINE IN DEBT SERVICE REQUIREMENTS: A large portion of outstanding parity debt was retired at fiscal year-end 2013, resulting in a drop in debt service requirements and, accordingly, a sizeable increase in debt service coverage. Coverage declined significantly but remained adequate through the recession.

STATE NON-IMPAIRMENT: The state covenants to not reduce the allocated percentage of excise taxes securing the Florida Forever and Everglades bonds.

STATE CONTROL OF PROGRAM: The state controls future debt issuance and has flexibility regarding offerings under the programs. Legislative action during the recession to increase the revenues available to bondholders is indicative of state support of the program.

RATING SENSITIVITIES

The rating is sensitive to the degree of volatility in the revenue stream.

CREDIT PROFILE

The documentary stamp tax revenue that secures the bonds is derived primarily from real estate activity, with additional revenues coming from other transactions such as car loans. Documentary stamp tax revenues have historically been quite volatile and rose dramatically during the boom in real estate through the middle of the last decade, from $1.2 billion in fiscal 2000 to a high of $4.1 billion in fiscal 2006. As the economy entered recession, with the Florida housing market severely affected, these transactions and the associated documentary stamp tax revenues dropped precipitously.

Revenues bottomed out in fiscal 2010 at $1.1 billion before recovering slightly in fiscal 2011, increasing 7.2% to $1.2 billion. Revenue growth has continued and, as an indicator of some recovery in the Florida housing market, revenues have grown in each of the last three fiscal years, up 9.1% in fiscal 2012, 30.3% in fiscal 2013 and 10.3% in fiscal 2014 to $1.8 billion. With recent strong revenue growth and the final maturity of parity Preservation 2000 bonds in fiscal 2013, debt service coverage has returned to former high levels. Fiscal 2014 pledged revenues provided 6.0 times (x) coverage of annual and peak debt service, which occurs in fiscal 2018.

STATE CONTROL OF PROGRAM

In response to the steep revenue declines, the state legislature took action in 2009 to bolster the revenue stream available to pay debt service if pledged revenues are insufficient. State statute was revised to expand the revenues available for debt service to include the balance of non-pledged documentary stamp tax revenues, less a small amount needed for debt service on other bonds. In addition to the inclusion of the non-pledged portion of revenues, the legislation waives the 8% service charge and other collection costs if pledged revenues are insufficient. The pledge underlying the bond security remains at 63.31% of revenues; however, the inclusion of the balance of the revenues clearly enhanced coverage of debt service requirements when revenues narrowed. When these additional revenues are included, coverage of maximum annual debt service from fiscal 2014 increases to 10.3x.

REVENUES SUPPORT VARIETY OF ENVIRONMENTAL PROGRAMS

The state has levied documentary stamp taxes for more than 70 years and has issued land acquisition bonds of several types since 1964. The state began issuing Preservation 2000 bonds in 1991 and Florida Forever bonds in 2001, pursuant to constitutional amendments. The two programs provide for revenue bond issuance to acquire land and water areas for conservation, recreation, water resource development, and preservation. The Preservation 2000 bonds have matured and no further borrowing is permitted under this program. The state has authorized issuance under the Florida Forever program to a maximum of $5.3 billion with borrowing authorized annually. No more than $300 million of pledged taxes may annually be used for debt service on Florida Forever bonds.

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 $12.5 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. The amount of Everglades bonds authorized is currently $500 million; $50 million in issuance has been authorized for fiscal 2015.

The additional bonds test takes into account debt service under both remaining programs and requires 1.5x coverage of maximum annual debt service (MADS) by pledged revenues in any 12 consecutive months of the prior 24 months. Additional bondholder protection is provided by covenants that ensure the allocated share of revenues is not reduced, the state's degree of control and flexibility in issuing future debt, and the rapid amortization of outstanding debt.

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.

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=855294

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, Inc.

Primary Analyst

Karen Krop, +1-212-908-0661

Senior Director

Fitch Ratings, Inc.

33 Whitehall St.

New York, NY 10004

or

Secondary Analyst

Laura Porter, +1-212-908-0575

Managing Director

or

Committee Chairperson

Douglas Offerman, +1-212-908-0778

Senior Director

or

Media Relations

Elizabeth Fogerty, +1-212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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