Fitch Rates Crossings at Fleming Island CDD, FL Special Assessment Bonds 'BBB'; Outlook Stable

CHICAGO--()--Fitch Ratings has assigned a 'BBB' rating to the following Crossings at Fleming Island Community Development District (CDD or the district), FL bonds:

--$24.8 million senior special assessment refunding bonds, series 2014A-1.

The bonds will be sold on a negotiated basis the week of July 28, 2014. Proceeds will be used to refund a portion of outstanding special assessment revenue bonds for debt service savings.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a senior lien on special assessments levied upon and collected on 1,470 residential and 142 acres of commercial properties (assessment area) within the district. Special assessments are levied as a fixed annual obligation on the property tax bill and have an equal lien on property as property taxes. There is no cross-default between the senior and subordinate debt. A cash-funded debt service reserve fund (DSRF) equal to 50% of maximum annual debt service (MADS) provides additional security.

KEY RATING DRIVERS

HIGH STATE OF DEVELOPMENT: The residential lots within the assessment area are 99% built out and occupied while 70% of the commercial areas are vertically developed. Approximately 86% of special assessment revenue will be derived from developed properties.

MULTI-LIEN STRUCTURE PROVIDES COVERAGE: The current transaction includes subordinate series 2014A-2 bonds (not rated by Fitch) with the senior lien portion sized to reflect the percentage (86%) of vertically developed properties within the assessment area. This structure insulates senior debt service payments from vacancy risk with higher coverage than typical for these structures.

SMALL CONCENTRATED AREA LIMITS RATING: The assessment area is small and concentrated with 30% of assessment revenue derived from the top five taxpayers, all commercial. Together, these factors limit any potential upward ratings migration above the 'BBB' range.

SOLID LAND-TO-LIEN RATIO: The district's land-to-lien ratio of 13 to 1, including overlapping debt of the county and county school board, represents significant value over the district's debt.

EFFICIENT TAX SALE PROCESS: Special assessments are levied on the property tax bill and carry the same lien on land as property taxes, ahead of all other liens including mortgage liens. The tax certificate process in Florida helps ensure that cash flow for debt service is maintained in case of tax delinquencies when there is demand for the property.

STRONG AREA ECONOMY: The district benefits from its inclusion in the diverse and expanding Jacksonville economy. Easy access to downtown Jacksonville affords residents numerous employment and commercial opportunities.

RATING SENSITIVITIES

DECLINES IN TAXABLE VALUES OR TAX COLLECTIONS: Sizable declines in tax collection rates which reduce coverage or a steep drop in assessed values which raise the burden of debt could pressure the rating.

CREDIT PROFILE

The Crossings at Fleming Island CDD is a local unit of special purpose government created in 1989. The district consists of 2,892 acres located in the unincorporated northeast portion of Clay County (Fitch implied GO rating of 'AA' with a Stable Outlook). The district is about 15 miles south from downtown Jacksonville (implied GO rating of 'AA+' with a Negative Outlook) and 10 miles south of Jacksonville Naval Air Station.

DISTRICT CHARACTERISTICS AND GOVERNANCE

The district is located at the intersection of U.S. 17 and County Road 220 on Fleming Island and incudes the development marketed under the name Eagle Harbor. Zoned for 4,622 total residential units and significant commercial/office/retail space, the development is approximately 75% built out with an estimated 7,000 residents. Amenities include a waterfront park, an 18-hole golf course with a 5,700 square foot clubhouse and a four-pool swim complex. The residential mix is split between younger families and retirees.

The district is governed by a five-member board elected by residents for four-year staggered terms. All of the board members are residents of the district. The board selects a district manager who directs day-to-day operations, funded primarily with maintenance special assessments. The current manager is Governmental Management Services, a private firm which manages over 100 special districts throughout the state. All required infrastructure is in place, funded with the proceeds of previous bond issues including the series 2000 special assessment bonds.

MULTI-LIEN BOND STRUCTURE MITIGATES VACANCY RISK

The assessment area is small and concentrated although not atypical for CDDs, encompassing approximately 510 acres within the district. Developed properties include 1,470 residential properties with 1,461 homes, a 99% build-out rate, and 142 acres of commercial property. Home prices generally range from $250,000 to $350,000.

Commercial enterprises include Target, Kohls, Publix, an office park, several medical office facilities, a campus of Embry-Riddle Aeronautical University and numerous smaller retail and office establishments. Currently 70% of commercial property is vertically developed. Vacant properties within the assessment area, including the 45 vacant residential units, constitute 14% of the assessment base.

The senior-subordinate structure of the refunding bonds is designed to mitigate exposure to vacant properties as par issuance is split 86% to 14% between the senior and subordinate liens. This corresponds to the proportion of vertically developed properties to vacant properties. Subordination of a portion of the bonds creates additional debt service coverage for the senior lien bonds.

State law also permits special assessments to be set up to 1% over the bond interest rate. The district intends to levy assessments at 25 basis points over the bond rate, affording a slight increase in overall coverage. Projected senior lien debt service coverage is 1.23x, which grows to 1.25x when projected earnings on the reserve fund and the revenue fund are included.

SOLID LAND-TO-LIEN RATIOS

Fiscal 2014 assessment area value totaled $390.8 million. This equates to a solid 13.0x land-to-lien ratio including the overlapping debt of the county and the school district. This ratio on commercial property including vacant property is lower at 7.1x but still adequate. The high value of property relative to debt provides strong incentives for property owners to pay the special assessments.

The assessment base is concentrated as the top 10 assessment payers represent 30% of total assessments. All top assessment payers are owners of commercial properties and no single payer accounts for more than 5% of total assessments. Target Corporation is the largest payer at just under 5%. The third leading assessee, with 3.7% of assessments, a business park, is currently vacant.

HIGHER COVERAGE INCREASES RESILIENCY

Assessment districts are typically structured to cover debt service on a sum-sufficient basis or with a slight cushion above 1.0x. The above-average coverage levels for the district enable repayment of the bonds to withstand considerable stress. Special assessments would cover senior lien debt service with the loss of the top five assessment payers or the delinquency of assessments on all vacant property (assuming no revenues from tax certificate sales).

The cash-funded debt service reserve fund, funded at 50% of maximum annual debt service (MADS), while smaller than the typical reserve fund, provides added security. Additional new money parity bonds are not permitted. The subordinate bonds are much less resilient to stress; however, indenture provisions insulate the senior bonds from any default of the subordinate obligations.

EFFICIENT TAX COLLECTION AND ENFORCEMENT

Special assessments are levied on each owner's property tax bill and carry a parity lien with property taxes on the owner's property. In addition to its superior lien status, special assessment and property tax collections benefit from Florida's efficient tax collection and enforcement system, assuming demand for the property. The county has the ability to sell tax certificates requiring the purchaser to pay all delinquent taxes for that year including the assessments plus interest.

Fiscal 2013 and 2014 tax collections in the assessment area have totaled 100%. Prior tax collections were adversely affected by ongoing delinquencies of the developer on a 130-acre parcel of vacant commercial land then included in the assessment area. As part of this refunding transaction, the 130 acres will be detached from the assessment area, rezoned as residential property and a separate unrated series will be secured specifically from assessments on the rezoned property.

VIBRANT AREA ECONOMY

The district benefits from its location in Clay County, close to Jacksonville and its large and diverse economy. The city is an employment and economic nexus for northeast Florida as major sectors include transportation, health care and military. The Port of Jacksonville is undergoing major expansion in anticipation of the completion of the widening of the Panama Canal, which is expected to boost trade activity. The Jacksonville Air Station and Mayport Naval Station establish a considerable military presence in the area, collectively employing 36,000 civilian and military personnel. Major area employers include healthcare providers Baptist Health, the Mayo Clinic, and St. Vincent's Health.

The county experienced four consecutive years of job growth through 2013 after several years of employment losses through 2009. These gains have continued and even accelerated into 2014 with May 2014 employment growing by a robust 4.4% over prior year levels. The job growth pushed May unemployment rates down to 5.3%, below the state and national averages.

County wealth indices are on par with state and national benchmarks on a per capita basis but higher when median household income is considered. Income levels of households in the district exceed those of the county. Median household income within the zip code encompassing the district was approximately $87,000 according to the U.S. Census while the same metric for the county totaled about $60,000.

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, 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=841457

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Contacts

Fitch Ratings
Primary Analyst
Larry Levitz
Director
+1-212-908-9174
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Michael Rinaldi
Senior Director
+1-212-908-0833
or
Committee Chairperson
Jessalynn Moro
Managing Director
+1-212-908-0608
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Larry Levitz
Director
+1-212-908-9174
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Michael Rinaldi
Senior Director
+1-212-908-0833
or
Committee Chairperson
Jessalynn Moro
Managing Director
+1-212-908-0608
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com