Fitch Affirms Cape Coral, FL's Outstanding Special Assessment Debt; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating action on Cape Coral, FL's (the city) revenue bonds as part of its continuous surveillance effort:

--Approximately $149.8 million in wastewater and irrigation water refunding assessment bonds and utility improvement assessment bonds, series 2005 (Southwest 2), 2006 (Southeast 1), 2007 (Southwest 4), and 2007 (Southwest 5 and Surfside), affirmed at 'BBB+'.

The Rating Outlook is Stable.

RATING RATIONALE

--The rating reflects the narrow debt service coverage by special assessments levied on residential and commercial properties that benefited from prior expansion projects.

--Special assessments are included as a line item on the property tax bill with nonpayment resulting in a property lien on parity with those related to ad valorem tax delinquencies.

--A backup covenant to pay debt service from net revenues of the utility system in the event that assessments are insufficient adds to bondholder protection and has not been called upon to date.

--Despite weak economic and a substantial decline in residential home values, tax collections in each of the assessment areas have been sufficient.

KEY RATING DRIVER

--The city's ability to continue collecting special assessments sufficient to cover debt service on outstanding bonds.

SECURITY:

The utility improvement special assessment bonds are secured by assessments levied on residential and commercial properties that benefit from utility expansion projects as well as a subordinate lien (after payment of water and sewer revenue bond debt service and state revolving loans) on net revenues of the combined water and sewer system.

CREDIT SUMMARY:

Despite weak economic conditions and a significant number of residential home foreclosures in recent years, collection of special assessments has remained sufficient to meet annual debt service obligations. Fitch believes the generally high value-to-lien ratio for each of the assessment areas coupled with nonpayment resulting in a property lien on parity with those related to ad valorem tax delinquencies provide strong incentive for parcel owners to pay the annual assessment. For each of the four assessment areas no concentration among payers exists, and current collections have remained around 95% through fiscal 2010.

Coverage of debt service by special assessments is structured to be about 1.1 times (x), which provides for a small cushion for non-collection. Additional security for bondholders is provided by the water and sewer utility system's rate covenant, which requires maintenance of rates, fees and other charges adequate to pay at least 100% of annual debt service on all outstanding senior lien bonds as well as any subordinated obligations, which includes debt service on outstanding assessment bonds.

Cape Coral is mainly a residential community located on the southwestern coast of Florida. The city's economic picture remains fragile, although the rate of job loss appears to be decelerating and the April 2011 unemployment rate of 10.6% shows moderate year-over-year improvement. According to Global Insight, employment gains within the Cape Coral-Fort Myers MSA are expected to lag the nation through 2011, but gain momentum in 2012 and 2013 with positive growth of 2.4% and 3% respectively. Employment opportunities are focused in the retail trade, leisure & hospitality, and government sectors.

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

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

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.

--'2010 Water and Sewer Medians'(April 6, 2010);

--'2010 Water and Sewer Sector Outlook'(Feb. 10, 2010).

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

2010 Water and Sewer Medians

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=509146

2010 Water and Sewer Sector Outlook

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=499482

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