Fitch Affirms Orlando, FL's TDT Revenue Bonds; Outlook Stable

NEW YORK--(BUSINESS WIRE)--In the course of routine surveillance, Fitch Ratings has affirmed the following city of Orlando, Florida bonds:

--$187.8 million tourist development tax (TDT) revenue bonds, series 2008A at 'BB+';

--$33.4 million TDT revenue bonds, series 2008B at 'B'.

The Rating Outlook remains Stable for series 2008A. The Rating Outlook is revised to Stable from Negative for series 2008B.

RATING RATIONALE:

--The 'BB+' rating on the series 2008A bond reflects slim debt service coverage. While current year pledged revenues are expected to hover around 1 times (x) debt service coverage over the next few years, continued growth is required to maintain coverage levels once installment payments cease at the end of fiscal 2018.

--The 'B' rating on the series 2008B bonds incorporates Fitch's expectation that liquidity reserve revenues, and potentially debt service reserve revenues, will be needed to make debt service payments.

--The Outlook Revision to Stable from Negative on the series 2008B bonds is based on recent signs of stabilization and growth in pledged revenues which, if continued, would increase coverage and may prevent a payment default.

--The ratings reflect the high leveraging of the revenue stream; Fitch believes the long-term profile of Orange County's tourism industry remains strong.

KEY RATING DRIVERS:

--Continued stabilization of TDT revenue in the near term and a meaningful recovery over the next few years.

--The exhaustion of the liquidity reserve for series 2008B bonds would put downward pressure on the rating.

SECURITY:

The bonds are limited obligations of the city secured by the discrete trust estate, including pledged funds, for each respective series of bonds. Pledged funds include revenues provided from 50% of a one cent tourist development tax (TDT) collected countywide and remitted to the city according to an interlocal agreement, levied county-wide on hotel stays, plus a fixed installment equal to $2.8 million available through 2018. The one cent TDT is a component of the total of the six cent TDT that is levied county-wide for a variety of purposes. Pledged funds are allocated to each trust estate of the three series of bonds (only two of which are rated by Fitch) according to a flow of funds with revenues distributed to each trust estate according to the seniority of the series. Legal provisions include a dedicated liquidity reserve and debt service reserve fund for each series with each established at 50% of respective maximum annual debt service (MADS).

CREDIT SUMMARY:

Pledged revenues have fluctuated significantly in recent years due to volatility in TDT collections, which declined 15.5% in fiscal 2009. Additional pledged revenues provided by fixed installment payments, which accounted for 18.8% of total pledged revenues in fiscal 2010, provided a small degree of stability. Signs of stabilization are apparent in recent months with year over year growth in the past 10 months. Annual TDT collections increased 3.4% in fiscal 2010 while pledged revenues increased 10.2% due to fiscal 2009 including only 11 months of collections. Year to date fiscal 2011 pledged revenues through the first three months of the year are up 14.6% from the year prior.

Given the thin margins on debt service, Fitch reviews coverage of each biannual debt service payment, in accordance with the flow of funds and timing of receipts. Based on fiscal 2010 revenues, pledged revenues are expected to provide well over 1x coverage for the first annual debt service installment payment (May 1) over the next few years while revenues would need to increase a moderate 2.2% in the second half of the year to cover 1x series 2008A debt service on the second debt service installment payment (Nov. 1) through fiscal 2013. In addition, series 2008A also has a dedicated liquidity reserve and debt service reserve account cash funded each equal to 50% MADS.

Annual second half growth ranging from 5.1% for fiscal 2011 to 16.3% for fiscal 2013 would be needed from fiscal 2010 levels to meet 1x debt service coverage for fiscal 2008B. In accordance with the flow of funds, the city would continue using the series 2008B liquidity reserve, currently cash funded at $0.9 million, equal to 36% of MADS, followed by the 2008B debt service reserve account, cash funded at 50% MADS.

Debt service is relatively level beginning in fiscal 2010 overall and for fiscal 2008A while debt service is slightly ascending for series 2008B until fiscal 2016. Additional pledged revenue growth is necessary over the medium term to accommodate the loss of installment payments beginning in fiscal 2019.

Legal provisions include a cross-default clause creating a technical default for all series of bonds (series 2008A, series 2008B and series 2008C; series 2008C is not rated by Fitch) if any of the three have an event of default. In an event of default, the flow of funds allows for bond payments to continue, ensuring senior bonds could still be paid even though an event of default would be triggered.

Located in central Florida, Orange County's economy is broad and diverse. Having expanded from its traditional base of tourism, the economy now includes professional and business services, education, health care, and biotech. Tourism does continue to play a pivotal role in the area economy with Universal Studios, Sea World and Disney World all located within the county and continues to expand with Universal Studios' opening of the 'Wizarding World of Harry Potter' last spring. The 11.3% unemployment rate for the county is moderately improved from its 11.7% level a year prior, remaining above the national average but in line with that of the state. Wealth levels are average.

Additional information is available at www.fitchratings.com.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, 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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