NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following action on Trustees of the South Carolina Heritage Trust revenue bonds:
--$12.32 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 strong 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 the downturn in the state's real estate market.
The lengthy declining trend in receipts reversed in fiscal 2012, growing 3.9% from fiscal 2011, and significantly improvement occurred in fiscal years 2013 and 2014 with 25.5% and 19.3% annual growth, respectively. The upward trend has continued through the first six months of the current fiscal 2015; up 15.1% year over year; the state had forecast a 10.8% increase in the pledged revenue for fiscal 2015. Fitch believes the state's estimate is likely to be surpassed given current trends to date and continued improvement in the real estate market. Fiscal 2014 revenues provided 2.5 times (x) coverage of maximum annual debt service (MADS) requirements and, should collections continue at the same pace for the remainder of the 2015 fiscal year, Fitch expects MADS coverage to approximate 2.87x.
Concern regarding 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, continued oversight by the state of South Carolina created by the authorizing legislation strengthens the credit. The trustees are currently 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. Under a state restructuring act enacted into law in 2014, commencing on July 1, 2015, the trustees will report this information to the newly constituted fiscal accountability authority, which will oversee the state's bond authorization and issuance.
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 $7.8 million), annual state appropriations to the DNR ($24.1 million in fiscal 2015), and certain other departmental discretionary funds, federal funds, and fee revenues.
Additional information is available at 'www.fitchratings.com'.
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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978940
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