NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the following state of Florida appropriation backed bonds at 'AA+', as part of its continuous surveillance effort:
--$374.45 million facilities pool revenue bonds;
--$686.24 million certificates of participation (Florida Correctional Finance Corp., lessor).
The Rating Outlook is Negative.
RATING RATIONALE:
--Debt service payments for the bonds listed above require annual appropriation, resulting in a rating one notch below that of the state's general obligation (GO) bonds.
--Florida's long-term economic prospects are solid, although current economic performance remains weak.
--The state employs sound financial management practices, including the use of consensus revenue estimating, history of achieving fiscal balance and maintenance of significant reserves.
--Florida's revenue sources are vulnerable to declines in the rates of population growth, consumption, and activity in the housing market, which continues its severe correction following a historic run-up.
--The state's debt burden is moderate and pensions are well funded.
WHAT COULD TRIGGER A DOWNGRADE?
--Changes in the state of Florida's GO rating, to which these ratings are linked;
--The state's GO rating maybe be downgraded if it is unable to maintain budget balance while preserving an adequate reserve position or its economic performance is weaker than what is assumed in state forecasts.
SECURITY:
Certficates of participation (COPs) and facilities pool revenue bonds are secured by lease rental payments paid by Florida state agencies, subject to annual appropriation. The COPs are payable from state appropriation of general funds to the Department of Corrections (DMS). The facilities pool revenue bonds are payable from rental payments to the Department of Management Services (DMS) by various state agencies for use of state facilities in the pool.
CREDIT SUMMARY:
The 'AA+' rating on Florida's appropriations backed debt is based on the credit quality of the state of Florida, as the COPs and lease revenue bonds issued by the Department of Management Services are secured by state appropriations to various state agencies. Fitch rates Florida's GO bonds 'AAA', reflecting the state's strong financial management practices, moderate debt burden, well-funded pension system, solid long-term economic prospects, and still significant reserves, including various trust funds. The Negative Outlook reflects the severity of the state's economic and revenue decline as well as continuing uncertainty associated with the economic and revenue outlook.
The COPs were issued to finance correctional facilities, pursuant to a master lease under which the legislative appropriation for lease rental payments is for all or none of the projects. Lease renewal is automatic, subject only to annual legislative appropriation, and not dependent upon project use and occupancy. Lease payments are appropriated through the operating budget of the Florida Department of Corrections, although the appropriation request is by DMS, providing centralization of the process. In the event of nonappropriation, the trustee may sell or re-let the facilities. Except for the cross-default all-or-none appropriation requirement, each series of certificates is separately secured.
The facilities pool revenue bonds were issued to finance a range of state office buildings and debt service is derived from rental payments for use of the facilities by state agencies. Legal provisions include a requirement that rental payments be set at 110% of debt service plus a capital depreciation allotment. Payments are made quarterly in advance, due on the 15th of the first month of the quarter, and, if an agency fails to make payment when due, the state controller will withhold unpaid amounts from that agency's general revenues and transfer them to the DMS. The pool of pledged state facilities includes a majority of state-owned office building space and can vary as facilities are moved in and out of the pool.
For more information on the state of Florida's general obligation credit, see Fitch's press release dated July 6, 2011: 'Fitch Rates Florida's $210MM GO PECO Bonds 'AAA'; Outlook Negative'.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
--'U.S. State 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. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564546
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