Fitch Rates Osceola County, Florida's $47.3MM Sales Tax Rev Bonds 'A+'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A+' rating to Osceola County, Florida's (the county) approximately $47.3 million sales tax revenue bonds, series 2008. The bonds are expected to price Dec. 9th. Proceeds will be used to finance various capital needs. Concurrently, Fitch affirms the following county ratings:

--Implied general obligation (GO) bonds at 'A+';

--$45.3 million in parity sales tax revenue bonds at 'A+';

--$117.3 million in infrastructure sales surtax revenue bonds at 'A+';

--$12 million in gas tax revenue bonds at 'A+'.

The Rating Outlook on all of the county's bonds is Stable.

The 'A+' rating on the sales tax revenue bonds reflects the strong coverage provided by pledged revenues, satisfactory legal provisions, and consistent financial results. The rating also incorporates the county's tourism dependent economy and below-average wealth levels. Credit concerns include the significant downturn in the local housing market and the increasing unemployment rate driven largely by the contraction in homebuilding. However, Fitch notes that the county's reserve levels currently provide sufficient financial flexibility to mitigate housing-market-related pressures. The county's future rating level will be dependent on its ability to maintain adequate reserves in spite of a potential prolonged economic downturn.

The sales tax revenue bonds are secured by the county's portion of the local government half-cent sales tax. The state levies a 6% sales tax and distributes the revenue collected within each county to the county and its incorporated municipalities according to a population-based formula. Currently the county receives 71.1% of total revenue collected within the county while the two incorporated municipalities, Kissimmee and St. Cloud, receive 19.7% and 9.2%, respectively. No annexations are currently foreseen which would significantly affect the distribution.

On a pro-forma basis, maximum annual debt service (MADS) coverage by audited fiscal 2007 sales tax revenue on this issuance and all outstanding parity debt is 2 times (x). Unaudited fiscal 2008 revenues show a 0.2% decline in revenues leaving coverage unchanged at 2x. Legal provisions are sufficient requiring historical pledged revenues to cover MADS 1.35x for the issuance of additional bonds. Coverage may decline marginally in future years as the county is considering issuing between $8 million and $26 million in parity debt to finance additional parking facilities for county buildings. However, series 1993 debt has its final maturity in fiscal 2010 which will offset a portion of the additional debt service from any new issuances.

Osceola County is located roughly 14 miles south of Orlando and adjacent to Disney World, leading to the county's concentration in tourism. The Walt Disney Co. (rated 'A' by Fitch with a Stable Outlook) employs 61,500 employees in Orange and Osceola counties while Osceola's other large employers are largely tourism, retail, and health care related. Tourism in the area has continued to remain strong in fiscal 2008. Overnight visitors to the county increased 5% to 6.2 million visitors from 5.9 million a year prior. Hotel occupancy rates remained stable at 54.6% due to an increase in hotel rooms. Since a large portion of the sales tax is paid by tourists, the county has been able to transfer much of its debt burden to non-residents. A combination of the rapid population growth and Florida's recent housing market bubble led to marked growth in taxable assessed value (TAV) which increased 140% in five years from fiscal 2003 to fiscal 2008. New construction accounted for approximately 39% of the increase. The current housing market correction has led to a recent minimal decrease in AV, a decrease in building permits and increase in foreclosures. According to county records, 6% of total properties were in foreclosure in fiscal 2008.

Financially, the county has been consistently strong with surpluses in four out of the last five years. Audited fiscal 2007 results show a $13 million general fund surplus increasing the unreserved fund balance to a sound 27.8% of spending, well above the county's policy level of 10.5%. Estimated fiscal 2008 results show the county breaking even. The county has proactively addressed recent Florida property tax reforms through a combination of personnel reductions, operating efficiencies, and the discontinuation of the sick leave payout program. As a result, the fiscal 2009 budget is balanced with no planned use of reserves or non-recurring revenues.

Overall debt levels are moderate at $2,198 per capita and 2.5% of market value although amortization is slightly below average with 46.6% of principal being retired within 10 years. The county's capital improvement plan (CIP) for fiscal 2008-12 totals $560.3 million with transportation needs accounting for 80% of projects. Due to a recent decline in road impact fees, the county plans to reduce its CIP for fiscal 2009, which is currently being finalized.

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