Fitch Rates Orange County, FL's TDT Revs 'AA-'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA-' rating to the following Orange County, FL bonds:

--$147.5 million tourist development tax (TDT) refunding revenue bonds, series 2010.

The bonds are scheduled to sell competitively Sept. 14.

In addition, Fitch affirms the following ratings:

--Approximately $748.6 million in outstanding TDT revenue bonds at 'AA-';

--Approximately $25 million in outstanding capital improvement revenue bonds (CIRB) at 'AA+';

--Approximately $74.2 million in outstanding public service tax (PST) revenue bonds at 'AA+';

--Approximately $308.1 million in outstanding sales tax revenue bonds at 'AA+'.

The Rating Outlook is Stable.

RATING RATIONALE FOR THE TDT BONDS:

--The bonds are secured by an economically sensitive pledged revenue stream subject to volatility.

--Coverage of debt service remains adequate despite the recent deterioration of the revenue stream and bondholders are further protected by sound legal covenants and a sizeable renewal and replacement reserve (R&RR) balance.

--The county's historically robust tourism and convention business is centered in Orlando, a world-class tourist destination.

General credit characteristics of the county include:

--Strong financial management is reflected in quarterly reporting, cost controls and maintenance of ample general fund and other tax-supported fund reserves.

--While tourism remains an important component of the county economy, notable diversification is evident in the expanding healthcare, education, and biotech sectors.

--Countywide capital requirements remain high but can and have been delayed based on the availability of revenue sources.

RATING RATIONALE FOR THE NON-TDT SECURITIES:

--Coverage remains strong from respective pledged revenues.

KEY RATING DRIVERS:

--For the TDT bonds, significant additional declines in pledged revenues could put downward pressure on the rating.

--Coverage for the other securities is not expected to weaken to the point of posing a credit concern.

--Continued strength in financial management and conservative budgeting should help the county weather the economic downturn.

SECURITY:

The TDT revenue bonds are limited obligations of the county payable from pledged revenues. Pledged revenues consist of revenues from the 5% TDT net of costs for operating, maintenance and promotion of convention center, which is capped at the greater of $0.4 million or 1.74% of the prior year's TDT collections, net convention center operating revenues, naming rights revenues, and investment earnings. The county has the ability to release all or part of the 5th cent pledge upon board approval, as long as remaining pledged revenues in each of two consecutive years within a 30-month period equal or exceed 1.5 times (x) of maximum annual debt service (MADS).

The PST revenue bonds are secured by a pledge of the public service tax (PST) levied and collected by the county on the purchase of electricity, gas, water and fuel oil within the unincorporated areas of the county.

The sales tax revenue bonds are secured by a pledge and lien upon that portion of the Local Government Half Cent Sales Tax distributed to the county.

The CIRB bonds are secured by revenues received by the county from the State Revenue Sharing Trust Fund in an amount equal to 50% of state revenue sharing moneys received by the county in the immediately preceding year.

CREDIT SUMMARY:

Pledged TDT revenues fell a substantial 15.7% in fiscal 2009, reflecting the national economic downturn and its corresponding impact on the tourism industry. Coverage of MADs was reduced to 1.55x which, while it is down notably from the year prior, remains in line with historical coverage levels. Fiscal 2010 year to date revenues through the first nine months of collections show signs of stabilization with a 0.7% aggregate annual increase and year over year gains in six of the previous seven months. MADs is expected to decrease marginally with this issuance raising coverage to an estimated 1.6x if current year to date gains are annualized.

The R&RR fund provides additional protection for TDT bondholders. The current balance of $51 million is down from slightly $56 million at the time of the last rating as the county used a portion to subsidize the convention center. Approximately $60 million was previously used to cash fund its debt service reserve fund in response to the downgrade of its surety providers. The county expects to use approximately $5 million in funds to provide additional support for convention center operations by fiscal year end. However, balances are expected to remain well within required levels which are the lesser of $20 million or 3% of outstanding senior lien bond principal.

Coverage for the remaining revenue bonds remains strong at over 4x for each in fiscal 2009 with stable revenues in fiscal 2010 year to date. Legal provisions on all securities are adequate requiring 1.35x MADs coverage to issue additional debt.

The county's economy is broad and diverse, anchored by the city of Orlando. Having expanded from its traditional base of tourism, the economy now includes professional and business services, education, health care, and biotech. Economic developments over the past few years have centered around the biomed industry. Tourism does continue to play a part of the county's economy with Universal Studios, Sea World and Walt Disney World located within the county limits and serving as three of the top 10 employers and taxpayers. According to the recent data from Smith Travel Research, which excludes Disney properties in its data, occupancy rates are inching up roughly 1% from a year prior while the average daily room rate continues to decline moderately. The unemployment rate in the county has increased to 11.4% for June 2010 from 10.7% a year prior remaining above the national average but in line with that of the state.

Financial performance for the county is strong and stable. Unreserved fund balances held in the general fund and separate tax supported funds equaled 36% of spending, providing the county with ample flexibility to weather the economic downturn. The county expects to end fiscal 2010 roughly flat in the general fund, although additional tax-supported funds may see moderate draws in other funds. In line with previous budgets, the fiscal 2011 budget includes the use of approximately $50 million which it expects to be offset by the 5% statutory revenue deduction and carry-overs from prior years.

Debt levels are low on a direct level and increase to moderate when overlapping debt is factored in. These are expected to remain stable over the next few years given the county's debt plans. Capital needs remain sizeable with a proposed fiscal 2011-2016 capital improvement plan (CIP) totaling $5 billion, including $1.3 billion in projected future costs. Major areas include the convention center (18.6%), utilities (15%) and public works (13%). Fitch notes the county can and has delayed projects over the past few years due to the economy. Non-enterprise fund debt plans are limited to a potential bank loan for public safety equipment.

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

In addition to the sources of information identified in the report 'Tax-Supported Rating Criteria', this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., IHS Global Insight, the U.S. Federal Government, and Property and Portfolio Research.

Related Research:

'Tax-Supported Rating Criteria', dated Aug. 16, 2010;

'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21 2009.

For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.

Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492470

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