2011-02-28 21:14:28 -
Fitch Ratings has assigned the following ratings to Orlando, FL's bonds.
--$8.9 million capital improvement refunding special revenue bonds, series 2011A 'AA+'.
Bond proceeds will be used to refund outstanding capital improvement special revenue bonds and a limited competitive sale is expected on March 15, 2011.
In addition, Fitch affirms the following ratings.
--Implied general obligation at 'AAA';
--Capital improvement revenue bonds at 'AA+'.
The Rating Outlook is Stable.
RATING RATIONALE.
--Strong financial management is evidenced by stringent reserve policies, consistent operating surpluses and robust reserves.
--The general fund is somewhat dependent on transfers from the Orlando Utilities Commission (OUC; revenue
bonds rated 'AA' by Fitch) which could leave it vulnerable should the OUC's income decline or the transfer policy change.
--The area economy, while it has been significantly affected by the current recession, remains strong and diverse and serves as the economic anchor of central Florida.
--Debt levels are high for the rating level although nearly half of outstanding debt is supported by tourism-related taxes and generally not borne by the local population and tax base. No plans for additional debt are anticipated.
--The rating on the non ad valorem revenue bonds incorporates the general credit characteristics of the city detailed above and appropriation risk.
KEY RATING DRIVERS
--Ample fiscal reserves are expected to continue to provide the city with flexibility which may be needed given uncertainty regarding economically sensitive revenues and the transfer level from the OUC.
--Debt levels are anticipated to remain relatively stable.
SECURITY.
The city covenants to budget and appropriate (CB&A) in each fiscal year, by amendment if necessary, an amount of covenant revenues sufficient to meet debt service. Covenant revenues are defined by ordinance as non-ad valorem revenues in the general and utility services tax funds, inclusive of operating transfers from other funds to the general fund and exclusive of any transfers between the general and utility services tax funds.
CREDIT SUMMARY.
Covenant revenues are broad and diverse. Non-ad valorem revenues have declined 4% since fiscal (FY) 2008 and officials report that FY 2011 revenues should be relatively even with FY 2010 receipts. On a pro forma basis, maximum annual debt service (MADS) coverage on this issuance and all outstanding parity debt based on projected fiscal 2010 results is a high 7.0 times (x). Coverage is expected to remain high as excess revenues are required to fund general government operations.
Located in central Orlando, the city's economy is broad and diverse, having expanded from its traditional tourism base to include professional and business services, education, health care, and biotech while remaining a world-class tourism destination. Unemployment rates have increased with the current economic downturn on an annual basis, although the December 2010 rate of 11.2% is slightly less than the rate of 11.5% experienced one year prior. Although Walt Disney World has a major impact on the city's economy, it is not located within city limits and is not part of the tax base. Universal Studios' property, the city's largest taxpayer, continues to expand. Foreclosure rates are also well above the national average, although consistent with that of the state.
Over the long term Fitch expects that Orlando's economy will continue to grow and attract a wide variety of residents and businesses.
The city has a well-established history of strong financial management, which has enabled it to grow sizeable fund balances. On an unaudited basis, the city reports surplus operations for FY 2010, in contrast to the budgeted use of $12.7 million in reserves, bringing its combined unreserved general fund and utilities services fund balance to $116 million or 29% of general fund and utilities services fund expenditures and transfers out. Roughly 23% of general fund revenue and other funding sources are derived from the OUC, whose revenue bonds are rated 'AA' by Fitch. The OUC pays the city an annual franchise fee as well as a dividend payment. While OUC revenue has been stable through FY 2011, the transfer will be renegotiated for FY 2012 and the city expects the transfer to be no less than the transfer in recent years. Any material reduction in the transfer as a result of future negotiations could pressure city finances and Fitch will monitor the outcome of those negotiations. The city budgeted use of reserves in FY 2011 as it has in prior years but expects little to no use of reserves if revenues are inline with budget. Year-to-date revenues are inline with budget and expenditures under budget. The city expects to remain in compliance with its target of maintaining general and utilities services fund unreserved balances equal to at least 25% of the subsequent year's budget.
Debt levels are high for the rating level with below-average amortization and moderate variable-rate exposure. The debt burden is partially offset as a sizeable portion of the city's debt is secured by tourism-related revenues. Capital needs appear manageable with the tax-supported portion of the fiscal 2011-2015 capital improvement plan totaling $138 million, excluding the city's general government funding for the SunRail project. Sunrail obligations are currently expected to be limited to a $13.7 million capital contribution made this fiscal year and approximately $1 million in annual operating expenses beginning seven years after completion of the first phase of the project. The project has been slightly delayed and the city reports that the governor is currently reviewing all contracts associated with SunRail. The City indicates that it will not move forward with the project if state funding is not available.
The city's pension and OPEB obligations are manageable. The defined benefit plan is closed to new non-safety employees and pension plans are all well-funded. The city fully funds its annually required contribution (ARC) for all plans as well as OPEB annually and the costs are manageable within the context of the city's operating profile.
Additional information is available at ' www.fitchratings.com :
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In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc.
Applicable Criteria and Related Research.
'Tax-Supported Rating Criteria', dated 16 Aug. 2010;
'U.S. Local Government Tax-Supported Rating Criteria', dated 08 Oct.
2010.
Applicable Criteria and Related Research.
Tax-Supported Rating Criteria
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U.S. Local Government Tax-Supported Rating Criteria
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Fitch RatingsPrimary AnalystKelly McGary, +1-813-224-0492Senior
Director100 N Tampa St.Tampa, FLorSecondary
AnalystJaissy Lorenzo, +1-212-908-9167AnalystorCommittee
ChairpersonAnn Flynn, +1-212-908-9152Senior DirectororMedia
Relations:Cindy Stoller, +1-212-908-0526Email:
cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com
