Fitch Rates Polk County School Board, FL's Rfdg COPs A; Downgrades Sales Tax Revs to 'BBB+'

TAMPA, Fla.--(BUSINESS WIRE)--Fitch Ratings assigns an 'A' rating to the following Polk County School Board certificates of participation (COPs):

--$50 million refunding COPs (School Board of Polk County, FL Master Lease Program), series 2010A;

--$5.9 million refunding COPs (School Board of Polk County, FL Master Lease Program), series 2010B.

The COPs are expected to sell via negotiation the week of Feb. 15 and are secured by lease payments made by the district to the trustee, as assignee of the Financing Corporation for the School Board of Polk County, Florida.

Fitch also affirms the Board's outstanding parity debt (including the refunded COPs) at 'A':

--$212 million COPs.

The Rating Outlook for the COPs is Stable.

In addition, Fitch downgrades to 'BBB+' from 'A-' the district's sales tax bonds:

--$35.3 million infrastructure sales tax revenue bonds, series 2004;

--$63.9 million infrastructure sales tax revenue bonds, series 2005;

--$93.5 million infrastructure sales tax revenue bonds, series 2007.

The Outlook for the infrastructure sales tax revenue bonds is Negative.

RATING RATIONALE:

--The Florida Master Lease structure is strong, and the all or none appropriation provision indicates solid incentive for timely repayment.

--The district's financial profile is strong and characterized by conservative budgeting and ample reserves.

--Moderately low debt levels should be sustainable given limited plans for additional debt.

--Pledged infrastructure sales tax revenue continues to weaken and now provides minimal coverage of debt service.

KEY RATING DRIVERS:

--Financial flexibility remains sound, and the district's ability to maintain this profile, along with stability of the local economy would contribute to an improved credit profile related to the COPs.

--Failure of sales taxes to stabilize in the near term will result in a rating downgrade for the infrastructure sales tax revenue bonds.

SECURITY:

The COPs are secured by lease payments made by the district to the trustee, as assignee of the Financing Corporation for the School Board of Polk County, Florida which is a not-for-profit corporation created to assist the district in the leasing, financing, and constructing of school projects. The certificates are being issued pursuant to a master-lease agreement, which provides strong incentives for appropriation. In the event of non-appropriation, the board must surrender all leased facilities to the trustee. The infrastructure sales tax revenue bonds are secured by the voter-approved half-cent sales tax. There is a debt service reserve requirement for the sales tax bonds fulfilled by surety policies from FSA and MBIA. Like most Florida school district COPs, there is no debt service reserve fund for the series 2010 COPs.

CREDIT SUMMARY:

The downgrade to 'BBB+' from 'A-' on the sales tax revenue bond rating is the result of further pledged revenue erosion and follows two previous downgrades in July of 2008 and July of 2009. The Outlook remains Negative reflecting the absence of any stabilization in the revenue stream, the uncertainty regarding the timing of a recovery and level at which stability will be achieved, and Fitch's expectation that declines may continue through the latter half of fiscal year 2010, eroding debt service coverage to levels inconsistent with the 'BBB+' rating.

A half-cent voter approved infrastructure sales tax secures the bonds. Proceeds are required to be spent on school capital projects, including debt service on bonds issued for that purpose. The tax is set to expire at the end of calendar year 2018, two months after the final maturity of the bonds. Pledged revenues provided 1.17 times (x) maximum annual debt service (MADS) coverage in fiscal 2009. Year to date fiscal 2010 data shows a 6.7% reduction in revenues from the same period a year prior which would lower coverage for the fiscal year to a slim 1.09x if declines are consistent with earlier months.

Historically known for its citrus and phosphate mining industries, Polk County's economy has diversified in recent years into health care, light manufacturing and distribution. Unemployment rates continue to increase with the current economic downturn and reached a high 12.9% in November 2009 from 8.2% a year prior, both in excess of national averages. Per capita income is below average, equal to approximately 82% of state and national averages. Foreclosure rates have increased dramatically and are twice the national average.

The district's financial operations are strong and characterized by responsible expenditure controls and conservative budgeted practices. While operating margins are mixed, net deficits typically occur in years with mid-year state funding reductions. The district closed FY 2009 with a $4.3 million surplus (unaudited) despite reductions in state aid, which increased the unreserved fund balance to $48.2 million, equal to a strong 7% of spending. Year to date performance in FY 10 is reportedly sound and officials expect to add to fund balance at year end.

Debt levels are moderately low with above average amortization. The district's capital improvement plan (CIP) for fiscal 2010-2015 totals a manageable $254 million, net of COPs repayment and is consistent with the previous CIP but substantially smaller than earlier plans due to a combination of declines in enrollment growth projections and reductions in property tax and sales tax revenues. Plans for additional debt are limited and include the district's full $22 million authorization of QSCBs over the next fiscal year for school renovations.

These rating actions reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include the following reports::

--'Tax-Supported Rating Criteria', dated Dec. 21, 2009;

--'Municipal Lease Rating Guidelines', dated March 22, 2007.

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

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