Fitch Affirms Crossings at Fleming Island CDD, FL's Special Assessment Bonds at 'BBB'

NEW YORK--()--Fitch Ratings has affirmed the 'BBB' rating on the following outstanding Crossings at Fleming Island Community Development District (CDD), FL bonds:

--$23.3 million senior special assessment refunding bonds, series 2014A-1.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from a senior lien on special assessments levied upon and collected on 1,470 residential properties 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 these senior bonds and outstanding 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

MATURE DEVELOPMENT: The residential lots within the assessment area are 99% built out and occupied and over 70% of the commercial areas are vertically developed. Approximately 90% of special assessment revenues are derived from developed properties.

MULTI-LIEN STRUCTURE PROVIDES COVERAGE: The series 2014A-1 bonds are part of a senior-subordinate lien bond structure sized to insulate senior debt service payments from vacancy risk; debt service coverage is stronger than typical Florida CDD bonds.

SMALL, CONCENTRATED AREA LIMITS RATING: The assessment area is small and concentrated, with 29% of assessment revenue derived from the top five taxpayers (all commercial). These factors limit any potential upward rating migration above the 'BBB' category.

SOLID VALUE TO LIEN RATIO: The district's value to lien ratio is an ample 15.4 to 1, representing 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 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 debt burden could pressure the rating.

CREDIT PROFILE

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

DISTRICT CHARACTERISTICS AND GOVERNANCE

The district is located on Fleming Island and incudes the Eagle Harbor development. Zoned for 4,622 total residential units and accompanying 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 current 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. All required infrastructure is in place.

MULTI-LIEN BOND STRUCTURE MITIGATES VACANCY RISK

The 510-acre assessment area is small and concentrated, although not atypical for CDDs. The area consists of 1,475 residential properties and 142 acres of commercial property. The residential component is virtually built out, and 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 about 80% of commercial property is vertically developed. Only 9% of the assessment base consists of vacant property.

The senior-subordinate structure of the two series of 2014 refunding bonds was designed to mitigate senior lien exposure to vacant properties, as par amount was split 86% to 14% between the senior and subordinate liens. This structure corresponded to the proportion of vertically developed properties to vacant properties at the time of bond sale. Currently, about 91% of debt service assessments are derived from developed properties, providing additional collateral to senior bond repayment. Fitch does not rate the subordinate lien series 2014A-2 bonds.

Senior lien coverage is boosted both by the subordination of a portion of the bonds and by the district's levy of special assessments at 25 basis points over the bond rate. As a result, fiscal 2015 assessments cover senior lien MADS by 1.22x, a much higher margin than with most Florida CDDs but still narrow for passive dedicated tax issues in general, contributing to the 'BBB' rating.

SOLID LAND TO LIEN RATIOS

Fiscal 2015 taxable assessed value of the assessment area represents a 6.8% increase over prior year valuations. This equates to a solid 15.4x value to lien ratio. Value to lien remains high at 13.6 when the overlapping debt of the county and the school district are included. The land to lien ratio on commercial property including vacant property is lower at 7.2x 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, with the top 10 payers representing 29% 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 (long-term Issuer Default Rating of 'A-', Stable Outlook) is the largest payer at just under 4.7%. The fourth leading assesse, with 3.5% of assessments, is a vacant business park.

STRONGER COVERAGE INCREASES RESILIENCY

Assessment districts are typically structured to cover debt service with only 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 is funded at 50% of MADS, and 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 appear on each owner's property tax bill and carry a parity lien with property taxes. 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 delinquent property. The county sells tax certificates that require the purchaser to pay all delinquent taxes and assessments for that year, plus interest. Tax collections in the assessment area have been excellent, totaling 100% or more in each of the past three fiscal years.

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; major sectors include transportation, health care and military. The Port of Jacksonville is undergoing major expansion in anticipation of the widening of the Panama Canal, which is expected to boost trade activity. The Jacksonville Air Station and Mayport Naval Station constitute a considerable military presence in the area, collectively employing 34,000 civilian and military personnel. Major area employers also include healthcare providers Baptist Health, the Mayo Clinic, and St. Vincent's Health.

The county experienced four consecutive years of job growth through 2014 after several years of recession-driven employment losses. Employment stabilized in 2015 with March 2015 jobs down .3% from the prior year. Unemployment rates since 2012 have trended lower than those of the state. The March 2015 unemployment rate of 5.1% compares favourably with the state (5.5%) and national (5.6%) unemployment averages for the month.

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 $89,000 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

Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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Contacts

Fitch Ratings
Primary Analyst:
Larry Levitz, +1-212-908-9174
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Michael Rinaldi, +1-212-908-0833
Senior Director
or
Committee Chairperson:
Steve Murray, +1-512-215-3729
Senior Director
or
Alyssa Castelli, +1-212-908-0540
Media Relations, New York
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Larry Levitz, +1-212-908-9174
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Michael Rinaldi, +1-212-908-0833
Senior Director
or
Committee Chairperson:
Steve Murray, +1-512-215-3729
Senior Director
or
Alyssa Castelli, +1-212-908-0540
Media Relations, New York
alyssa.castelli@fitchratings.com