Fitch Affirms South Carolina Heritage Trust's Revs at 'A+'; Outlook Stable

NEW YORK--()--Fitch Ratings takes the following action on Trustees of the South Carolina Heritage Trust revenue bonds:

--$14.84 million outstanding revenue bonds, series 2006 affirmed at 'A+'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from a portion of the South Carolina state deed recording fee dedicated to the Heritage Land Trust Fund ($0.10 of total $1.30).

KEY RATING DRIVERS

NARROW AND VOLATILE PLEDGED REVENUE: The pledged state deed recording fee revenue stream is narrow and volatile, dependent on the value and volume of real property transfers in the state.

ADEQUATE DEBT SERVICE COVERAGE: Adequate debt service coverage is provided by pledged fee revenues, which have exhibited recent growth after steep declines during the recession.

STATE COVENANT FOR SUFFICIENT RATE SETTING: The state covenants to impose and maintain the fee at a rate sufficient to discharge all covenants, agreements, and obligations with respect to the bonds.

ADVANCE FUNDING OF DEBT SERVICE: Debt service is funded almost a year in advance and there are no plans or authorization for additional borrowing under this security.

CREDIT PROFILE

The bonds were issued in 2006 by the Board of the South Carolina Department of Natural Resources (DNR), acting as the trustees of the South Carolina Heritage Trust, to fund part of the cost of acquiring certain high-priority property that qualified for the state's Heritage Trust land conservation program. The bonds are secured by the portion of the state deed recording fee dedicated to the Heritage Land Trust Fund. Pursuant to the authorizing legislation, the trustees' ability to issue bonds expired in March 2008 and Fitch does not expect additional bonds to be issued backed by this security. The additional bonds test requires that fee revenues during the most recent fiscal year are not less than 150% of maximum annual debt service (MADS).

The state deed recording fee is imposed on all transfers of real property for which a deed is recorded with a county clerk of court or register of deeds in each of the state's 46 counties, subject to certain exemptions. The fee is $1.30 for each $500 or fractional part of $500 of the value of real property transferred, and 10 cents of the total fee is dedicated to the trust fund and pledged to the bonds. The narrow pledged fee revenue stream, which is dependent on the value and volume of real property transfers in the state, is variable - collections increased 112% from fiscal 2002 to fiscal 2006 then declined 90% between fiscal years 2006 through 2011, reflecting a downturn in the state's real estate market.

The long-term declining trend in receipts reversed in fiscal 2012 growing 3.9% from fiscal 2011, and improvement has been seen through the first six months of fiscal 2013; up 26.2% year over year. The state had forecast a 4.8% decline in the pledged revenue but continued improvement in the real estate market appears to be allowing the state to surpass its forecast. Fiscal 2012 revenues provided 1.7 times (x) coverage of required and MADS requirements and, should collections continue at the same pace for the remainder of the 2013 fiscal year, MADS coverage will approximate 2.1x; up from 1.6x based on the state's budget forecast.

The volatility in the revenue stream is somewhat mitigated by timing mechanisms that result in funding of principal payments almost one year in advance. In addition, the role for the state of South Carolina created by the authorizing legislation strengthens the credit. The trustees are required to confirm to the state budget and control board (governor, treasurer, comptroller general, chairman of the senate finance committee, and chairman of the House Ways and Means committee) not later than Dec. 1 of each year that, based on the revenues for the previous fiscal year, fee revenues are projected to be sufficient to cover debt service in the following calendar year. If fee revenues are projected to be insufficient, the trustees must make recommendations as to action necessary by the state to ensure revenue sufficiency. In the authorizing legislation the state covenanted to impose and maintain the fee at a rate sufficient to discharge all covenants, agreements, and obligations with respect to bonds. The final maturity of the 2006 bonds is Aug. 1, 2021.

Significant additional revenues could be tapped in the event fee revenues are insufficient, although they are not required to be used for debt service. Other available funds include Heritage Land Trust Fund moneys (currently $4.7 million), annual state appropriations to the DNR ($18.6 million in fiscal 2013), and certain other departmental discretionary funds, federal funds, and fee revenues.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

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Contacts

Fitch Ratings
Primary Analyst:
Marcy Block, +1-212-908-0239
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Laura Porter, +1-212-908-0575
Managing Director
or
Committee Chairperson:
Karen Krop, +1-212-908-0661
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst:
Marcy Block, +1-212-908-0239
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Laura Porter, +1-212-908-0575
Managing Director
or
Committee Chairperson:
Karen Krop, +1-212-908-0661
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com