Fitch Rates Collier County, FL's Non Ad Valorem Revenue Bonds 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following rating to Collier County, Florida:

--Approximately $25.9 million non ad valorem revenue bonds, series 2010B 'AA'.

The bonds are scheduled to sell competitively Nov. 10, 2010.

In addition, Fitch affirms the following ratings:

--$60 million in outstanding non ad valorem revenue bonds, series 2010 at 'AA';

--Implied general obligation (GO) at 'AA+'.

The Rating Outlook is Stable.

RATING RATIONALE:

--The implied GO rating is based on the county's general credit characteristics including:

--High area wealth levels;

--Manageable capital needs coupled with the county's continued use of pay-go funding;

--Adequate financial flexibility despite the recent volatility in financial performance, as the county has a number of revenue options and expenditure reductions that it is able to make if necessary.

--The 'AA' rating for the non ad valorem revenue bonds incorporates general credit characteristics of the county as well as the security's appropriation risk.

KEY RATING DRIVER:

--Financial results significantly weaker than currently anticipated or the recurrence of structural imbalance will result in downward pressure on the rating.

SECURITY:

The bonds are secured by the county's covenant to budget and appropriate (CB&A), by amendment if necessary, from non ad valorem revenues amounts sufficient to pay debt service.

CREDIT SUMMARY:

Collier County, which includes the city of Naples (rated 'AAA' by Fitch) is located in southwestern Florida, encompassing part of the Everglades National Park. Historically concentrated in tourism and agriculture, the economy has diversified over the past decade to include a sizeable presence from health care and scientific research. Unemployment has increased with the recent recession to 13.6% in August 2010, above the state and national average, from 13.2% a year prior. Wealth levels remain among the highest in the state and nation. The tax base has declined in recent years due to a combination of recent state property tax reform and the housing market, including a greater than 10% annual decline in both fiscal 2010 and fiscal 2011. The operating ad valorem tax rate remains low at 3.56 mills for fiscal 2011, substantially below the state cap of 10 mills.

Financial results have exhibited some volatility in recent years with operating deficits in each of the last two audited years. Following a policy decision in fiscal 2008 to draw down reserves to more closely mirror its fund balance target cap of 15%, the county experienced an additional decrease of $20.7 million in reserves in fiscal 2009, lowering the unreserved fund balance to 11.5% of spending. The county attributes the decrease in fiscal 2009 to a combination of sales tax revenue and interest earnings coming in below budget. Estimated fiscal 2010 results indicate a return to structural balance with an approximate $10 million increase to the unreserved fund balance. The county does not anticipate using any reserves in fiscal 2011.

Overall debt is moderate and is expected to remain so over the next few years as the county's capital needs are reduced due to the economic downturn. Capital spending will be concentrated on maintenance, and largely funded on a pay-as-you-go basis. The fiscal 2011-2015 capital improvement plan (CIP) totals $553.8 million, with water and wastewater projects accounting for roughly half of all spending. There are no plans for additional debt.

The CB&A bonds have no direct lien on any specific revenue stream while the county's outstanding sales tax bonds have a first lien on the county's 1/2 cent sales tax, which accounted for over 30% of total non ad valorem revenues in fiscal 2009. Despite significant declines in available revenues over the past few years, coverage on the CB&A bonds remains sound at 8.4 times (x) in fiscal 2009 and 7.1x estimated for fiscal 2010 although this includes payment of the sales tax revenue bonds which will be refunded with this issuance.

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

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc. and IHS Global Insight.

Applicable Criteria and Related Research:

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

--'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.

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

Applicable Criteria and 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=564566

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