NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a rating of 'BBB+' to the following Myrtle Creek Improvement District, FL obligations:
--$17,330,000 special assessment revenue refunding bonds, series 2016A.
The bonds are scheduled for sale on a negotiated basis on Sept. 8. Proceeds will be used to refund outstanding special assessment revenue bonds, series 2006A for debt service savings.
The Rating Outlook is Stable.
The bonds are payable from special assessments levied upon property owners within the district. Special assessments are levied on each owner's property tax bill and have an equal lien on property as property taxes. Revenues from owners who have prepaid their assessments are not included as pledged security. A cash-funded reserve established in the amount of 25% of maximum annual debt service (MADS) provides modest additional security.
KEY RATING DRIVERS
BELOW AVERAGE VALUE TO LIEN RATIO: At 8.2x the value to lien ratio is fairly low for a special purpose district at this stage of development but provides adequate bondholder protection against property value declines.
MATURE, SMALL SERVICE AREA: The district at a little over 1 1/2 square miles is larger than many community development districts but still smaller than most municipalities. The status of development is mature, and the United State Tennis Association (USTA) is constructing its U.S. headquarters and training facilities within the district. A moderate amount of concentration exists among assessment payers.
SPECIAL ASSESSMENTS ON PARITY WITH PROPERTY TAXES: 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.
LIMITED TAXING FLEXIBILITY: The special assessment provides a narrow coverage margin of 5% net of the prepayment discount. Payment of the bonds shows little tolerance to stress.
INCREASED DELINQUENCIES: A significant increase in delinquent tax payments could signal financial distress and pressure the rating downward.
The district is a local unit of special purpose government of the State of Florida, established under and pursuant to the Uniform Community Development District Act of 1980, Chapter 190, Florida Statutes, as amended (the Act) to manage and finance certain community development services, including capital infrastructure. The Act gives the district's board of supervisors the right to finance, construct, operate and maintain stormwater, water supply, sewer and wastewater management systems and other infrastructure improvements within the district as well as the power to issue bonds and to levy and assess taxes, including the assessments securing the bonds.
The district is located in the southeastern portion Orlando and consists of 1,087 acres, of which 1,042 are developable or have been developed. District development includes a mix of residential, minor commercial and sports-related activities.
The district's current value to lien of 8.2x is fairly low compared to districts with comparable levels of development. It should be noted that a significant portion of the overlapping debt used to calculate the value to lien ratio consists of tourist development tax-secured debt of the city of Orlando and Orange County which is mostly paid by outside visitors. The value to lien on unbuilt properties owned by the Pulte Home Corporation is approximately 4.3x. No other debt is planned. There is some concentration in the assessment base. Fitch estimates that based on current home sales and homes under contract, Pulte will account for about 10.9% of debt service assessments; the USTA represents approximately 9.8% of the assessment base. Pulte's share of assessments is expected to decline as it builds and sells homes on property it currently owns.
MATURE MULTIUSE PROJECT
Residential development consists of three projects; VillageWalk, Enclave at VillageWalk and the Watermark apartments. VillageWalk includes 1,281 residential, 631 single family units and 650 townhomes, a 26,000 square foot Town Center clubhouse as well as some commercial enterprises. Home prices range from $219,000 up to $423,500. All of the homes within VillageWalk have been sold to end users. The Enclave at VillageWalk consists of 144 planned large estate homes with prices starting from the low $600,000. At this time, the developer has closed on 17 homes, sold 31 homes and has one pending sale. The average sale price on closed new homes is $850,000.
Watermark apartments consist of 279 luxury rental units which are fully leased. The apartments are owned by a subsidiary of the developer; however, the special assessments related to this property have been prepaid in full by the developer and are no longer part of the assessment base. Currently, 93% of residential properties within the district subject to special assessments to pay debt service are completed and owned by end users.
The USTA's national campus will be the largest U.S. tennis complex, with over 100 courts and a 150,000 square foot state-of-the-art facility on 63 acres; facilities are scheduled to open to the public in 2017. The USTA is also relocating its corporate offices to the district. The project represents a more than $100 million investment by the USTA. In addition, headquarters are under construction for the United States Professional Tennis Association (relocating from Houston) and the United States Tennis Association - Florida Section (relocating from Daytona Beach). Each of these headquarters consists of about 10,000 square feet with an estimated cost of $2.25 million.
Other areas within the district owned by the developer will also be prepaid as part of this transaction, so bondholders will have no exposure to the developer.
Development within the district is part of a 9,000 acre master planned community called Lake Nona, which includes extensive residential development, educational facilities, the Lake Nona Health & Life Sciences Cluster and the sports center represented by the USTA and Major League Soccer's Orlando City Soccer Club's Training Center and Elite Youth Academy. The development currently includes 11,000 residents, 5,000 on-site employees and 7,000 students. Lake Nona is located about 10 minutes from Orlando International Airport and 30 minutes from downtown Orlando.
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.
Assessments are 'grossed up' by 4.5% to account for tax collector administrative costs and Florida's 4% discount for early payment of property taxes (including assessments). While this provides very thin coverage of debt service, tax collections in the assessment area have been strong; delinquencies historically have been well below 1% of the assessment levy.
According to a 2002 interlocal agreement between the district and Orlando, residential properties within the district then valued at under $400,000 are subject to caps on the annual amount of debt service special assessments which may be levied. As this refunding will result in across-the-board lower assessments for all properties, all proposed assessments are now below the respective caps.
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.
VARIATION TO U.S. TAX SUPPORTED RATING CRITERIA: The rating on the bonds is based on the application of a variation from U.S. Tax-Supported Rating Criteria. This variation is due to the nature of Florida community development district (CDD) credits, which rely upon a fixed revenue stream of special assessments on parity with property taxes and which are set each year in an amount to cover debt service rather than a fixed percentage of property value.
The committee employed an analysis of the CDD bonds which utilizes value to lien ratios of the underlying district property which indicates the multiple of protection against property value decline. Fitch also evaluates the status of district development including the degree of concentration of the district's assessment base and available liquidity resources to offset delinquent assessment payments. In this case a reserve fund and Florida's tax certificate process provide ample liquidity to offset any delinquencies in property tax and assessment payments.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.
U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)
Dodd-Frank Rating Information Disclosure Form