Fitch Affirms West Palm Beach, FL's CRA Tax Increment Bonds at 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings affirms the following ratings on West Palm Beach, Florida's Community Redevelopment Agency's (CRA) tax increment revenue bonds:

--$77.2 million series 2006A at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from a lien on tax increment revenues generated within the City Center Community Redevelopment Area (CCCRA), net of prior CRA commitments to the CityPlace Community Development District (CDD) and a private developer.

KEY RATING DRIVERS

STRONG DEBT SERVICE COVERAGE: Maximum annual debt service (MADS) coverage on the CRA's outstanding senior lien tax increment revenue bonds is strong at 3.2x. Coverage holds up well under various Fitch stress tests.

CONCENTRATED, RECOVERING TAX BASE: High concentration exists within the project area, with the top 10 taxpayers representing 31% of incremental value (IV). Project area assessed value (AV) continued a second year of moderate growth after a steep decline.

SOLID PROJECT AREA, LOCAL ECONOMY: The CCCRA benefits from its location and function as West Palm Beach's (city) downtown commercial core, which features a diverse mix of commercial, residential and government activities. The local economy continues to improve, and features above-average wealth levels and an unemployment rate below the national level.

SUBORDINATE OBLIGATIONS LIMIT LEVERAGE: The only outstanding senior lien tax increment revenue bond is the series 2006A. Additional issuance is limited by a 1.50x MADS additional bonds test (ABT) but is more practically restricted by a significant amount of outstanding subordinate obligations.

RATING SENSITIVITIES

DOWNTURN IN CCCRA VALUATIONS: A return to steep declines in the CCCRA's assessed values, leading to narrowing tax increment revenues and coverage could lead to negative rating action.

CREDIT PROFILE

The CCCRA, established in 1984, is one of the city's two community redevelopment areas, and encompasses approximately 980 acres including much of the downtown core of the city.

CCCRA INCLUDES DIVERSE AND HIGHLY DEVELOPED DOWNTOWN AREA

In addition to a diverse base of commercial and residential structures, the CCCRA includes CityPlace, a popular mixed-use development featuring upscale shopping and entertainment (CityPlace CDD special assessment/revenue bonds rated 'A' by Fitch). The CCCRA is densely developed as reflected in its $1.9 billion tax base, which represents 23% of the city's taxable value on only 3% of its total acreage.

Management reports the pipeline for development within the city is strong, with approximately $1.3 billion under construction or approved, over 50% of this taking place within the CCCRA. A 400-room convention center hotel and parking garage is slated to begin construction within the project area in 2014 with an opening in 2015. This and other developments are expected to support CCCRA AV stability and growth over the next several years.

CRA ACTIVITIES FUNDED ALMOST ENTIRELY BY TAX INCREMENT REVENUES

The CRA's chief funding source is property tax increment revenues derived from the tax levies of the city, Palm Beach County, and West Palm Beach Downtown Development Authority (DDA). The city and county are the primary taxing entities levying 8.35 and 4.78 mills, respectively, in fiscal 2014, which remains level with the prior year. Both levies are comfortably below the 10 mill cap, and generated 95% ($20 million) of combined pledged revenues in fiscal 2014. The DDA levy is 1 mill and generates only about 5% ($1 million) of combined pledged revenues.

SOLID DEBT SERVICE COVERAGE

Coverage of senior lien debt service by CCCRA tax increment revenues remains robust at 3.2x for both fiscals 2013 and 2014 MADS despite recent dips in AV and IV. Pledged tax increment revenues are net of prior obligations to CityPlace CDD and a private developer, which totaled $3.6 million in fiscal 2014 or about 17% of total revenues. The obligation to CityPlace CDD is effectively 100% of its debt service which was $3.6 million in fiscal 2014, potentially rising to a maximum of $4.2 million.

All-in coverage is solid at 1.3x, and there is no cross-default to the seniors from the juniors. The subordinate bonds and other obligations limit additional leverage, though the 1.5x ABT provides protection as well.

Coverage stands up well under various Fitch-designed stress scenarios, including the loss of the top 10 taxpayers and large AV declines. CCCRA AV could drop by 50% and still generate sufficient tax increment revenue to cover MADS by at least 1.0x.

HIGH TAX BASE CONCENTRATION

The CCCRA tax base exhibits high concentration as the top 10 taxpayers, primarily office properties, account for 31% of IV. The largest taxpayer represents 7% of IV. Concentration increased over the past year due to the revaluation of the CityPlace Office Tower, the second leading taxpayer, following the sale for more than double its previous AV. Concerns about concentration are somewhat mitigated by the diversity of tenants in the office properties; however, single site risk still exists.

STRONG SOCIOECONOMIC PROFILE

The city incorporates a population of a little over 100,000 and benefits from its role as the county seat for Palm Beach County. The city is characterized by above-average wealth levels, with per capita personal income 133% and 128% of the state and national averages, respectively. The unemployment rate continues to recover and is now below the national rate and on par with the state.

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, S&P/Case-Shiller Home Price Index, IHS Global Insight, and the National Association of Realtors.

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=825353

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Contacts

Fitch Ratings
Primary Analyst
Nicole Wood
Associate Director
+1-212-908-0735
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Larry Levitz
Director
+1-212-908-9174
or
Committee Chairperson
Karen Ribble
Senior Director
+1-415-732-5611
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Nicole Wood
Associate Director
+1-212-908-0735
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Larry Levitz
Director
+1-212-908-9174
or
Committee Chairperson
Karen Ribble
Senior Director
+1-415-732-5611
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com