NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB' rating on the following limited tax general obligation (LTGO) bonds of the city of Maitland, Florida (the city):
--$12.6 million LTGO bonds, series 2005.
The Ratings Outlook on the LTGO bonds is revised to Stable from Negative.
In addition Fitch affirms the city's 'AA+' implied GO rating and the 'AA' rating on $13.6 million of community redevelopment revenue bonds, series 2005 issued by the Maitland Community Redevelopment Agency (CRA).
The Outlook on these bonds is Stable.
SECURITY
The LTGO bonds are limited obligations of the city, secured by the levy of ad valorem taxes not to exceed 0.5 mills on all taxable property in the city. Additional security is provided by available funds in the debt service fund.
The CRA's revenue bonds are secured by a pledge of tax increment revenues from the downtown redevelopment area and a secondary pledge of the city's covenant to budget and appropriate (CB&A) lawfully available non-ad valorem revenues. The city's CB&A continues until the pledged tax increment revenues or the available non-ad valorem revenues are sufficient to fully defease the bonds.
KEY RATING DRIVERS
LIMITED LTGO SECURITY: The LTGO rating reflects the limited tax pledge. The pledged 0.5 mill ad valorem tax rate would generate 1.04 times (x) coverage of maximum annual debt service (MADS) based on fiscal 2014 estimated taxable assessed value (TAV). Accumulated surplus collections in the debt service fund provide a modest cushion. The rating is also capped by the city's implied GO rating, though this is not a meaningful cap at this time.
LTGO OUTLOOK REVISED TO STABLE: The Revision of the Outlook to Stable for the LTGO bonds reflects recent improvements in the city's tax base. The 'BBB' rating reflects Fitch's ongoing concern over the low coverage levels on the bonds. A reversal of the current taxable assessed valuation (TAV) growth trend would likely result in downward rating pressure.
IMPLIED GO BENEFITS FROM AMPLE FLEXIBILITY: The 'AA+' implied GO rating reflects the city's very strong financial position. Historically stable general fund operations have resulted in ample general fund reserves providing the city with a very high level of financial flexibility.
STABLE, DIVERSE LOCAL ECONOMY: Above average socio-economic indicators combined with a significant commercial base provide stability and diversity within the local economy. The city's proximity to Orlando is also viewed favorably.
MANAGEABLE CARRYING COSTS: Carrying costs including debt service on the LTGO and CRA debt, pension and other post-employment benefits (OPEB) are modest.
REVENUE BONDS BENEFIT FROM CB&A: The 'AA' rating on the CRA bonds is based on the city's CB&A. Legally available non-AV revenues provide solid coverage of all obligations secured by this pledge, including the CRA bonds.
RATING SENSITIVITIES
A reversal of the current assessed valuation (AV) growth trend would likely result in downward rating pressure. Since coverage is so close to sum-sufficient, a small amount of erosion would have a greater impact on the rating than moderate improvement.
CREDIT PROFILE
Maitland is located in Orange County (implied ULTGO 'AAA', Stable Outlook) approximately 10 miles north of Orlando (implied ULTGO 'AAA', Stable Outlook) encompassing 6.4 square miles with a population of approximately 16,000. Despite its small area, the city's commercial base is significant. Economic activity is driven by the leisure and hospitality sectors; however, education and health provide for some diversity.
SMALL BUT DIVERSE ECONOMY
Maitland is characterized by a dominant suburban office market for the region which includes over 8 million square feet of office space employing approximately 23,000 people. The Maitland Center/Summit area is home to over 350 corporations including Clear Channel Communications, Digital Risk, and Fidelity Information Systems. The commercial mix features a number of hotels and restaurants, Florida Hospital, and a sports and training facility affiliated with the NBA's Orlando Magic.
ECONOMIC CONDITIONS IMPROVING
Employment data is not available from the Bureau of Labor Statistics due to the city's population size but the general economic turnaround is evident in an improvement in the county's unemployment rate to 5.4% in December 2013, reflecting a 2.8% increase in total employment on the year. Maitland's wealth levels are very strong, with per capita money income and median household income 62% and 42% higher than the nation respectively. City residents exhibit high educational attainment; 24% of residents hold an advanced degree, more than 2 times the national standard.
The city's TAV was negatively impacted by the housing crisis, declining 23% between 2009 and 2013 but preliminary TAV expectations for 2014 show an increase of 1.8% to $1.98 billion. City management expects TAV growth to continue as a result of the rebound of the local housing market and new developments coming on line. Zillow.com is reporting year over year growth in their Zillow Home Value Index of approximately 16% to $290,300 still well short of Maitland's peak of $380,000 in June of 2006.
ROBUST GENERAL FUND OPERATIONS
The city has maintained strong general fund results, producing operating surpluses in each year from 2006 through 2011. The city ended fiscal 2012 with a small general fund operating deficit after transfers of $614,000 (2.7% of spending), but this was largely the result of increased capital spending. Fiscal 2012 ended with an unrestricted general fund balance of $15.6 million or a very strong 70% of spending.
Unaudited 2013 results show a general fund surplus after transfers of $1.2 million, increasing the city's unrestricted fund balance to $16.4 million or 79% of spending. The 2014 budget was balanced without the appropriation of reserves and included a merit based salary increase of 2.5%. Preliminary year-to-date results are on budget and the city expects to end fiscal 2014 without the use of general fund balance.
WEAK LTGO
The city levied 0.48 of the available 0.5 mills in fiscal 2014 for debt service and retains approximately $111,000 of surplus revenues in a reserve account. Estimated fiscal 2014 coverage on the LTGO bonds using the full 0.5 mill levy is thin at 1.05x, with MADS coverage at 1.04x. However, given the recent and continuing improvement to property values, Fitch expects TAV and debt service coverage to improve modestly over the near term.
MODERATE DEBT PROFILE
The city's overall debt burden is moderate at $5,018 per capita and 3.28% of full market value, although debt levels are largely driven by overlapping debt of the county and school district. The city's capital improvement plan is modest with $4 million in general fund projects planned. Management will continue its practice of using pay-as-you-go capital financing and does not anticipate debt issuances in the near term.
LOW CARRYING COSTS
Pension benefits for general employees are provided through the state plan (FRS) or a defined contribution 401(a) plan. Police and fire are covered under a single employer defined benefit pension plan administered by the city. FRS is well-funded at 85.4% or an estimated 78.9% using Fitch's more conservative 7% rate of return. The city's defined benefit plan is funded at only 68.2%, or an estimated 62% using Fitch's 7% rate of return. The unfunded liability is modest at 0.4% of market value.
Other post-employment benefits (OPEB) are funded on a pay-as-you-go basis and the unfunded accrued actuarial liability is a low 0.52% of market value. Total carrying costs including debt service, pensions, and OPEB were a very manageable 11.8% of governmental spending in fiscal 2012.
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, University Financial Associates, Zillow.com, S&P/Case-Shiller Home Price Index, IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local 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. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=824500
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