NEW YORK - (Business Wire) Fitch Ratings assigns an 'A' rating to Osceola County School Board, Florida's (the district) approximately $36.5 million certificates of participation (COPs), series 2009A. The COPs are expected to price the week of Nov. 9. Proceeds will be used to refund outstanding COPs for debt service savings. Concurrently, Fitch affirms the district's $169 million of outstanding COPs, a portion of which will be refunded with this issuance. The Rating Outlook is Stable. The 'A' rating on the COPs reflects strong legal features of the master lease structure as well as the general credit characteristics of the district, including moderate debt levels, sound management, and healthy reserve levels. Also factored into the rating are the district's demonstrated ability to manage the recent state funding reductions and moderating capital needs as previous rapid enrollment growth levels off. Fitch believes that the district, like all Florida school districts, will likely face a volatile operating environment in the current economic downturn. However, the district's reserve levels provide a degree of flexibility to weather the pressured operating environment. Over the next few years, the district will also need to continue to balance its capital needs with a decreasing tax base.
The COPs are secured by lease payments made by the district to the trustee, as assignee of the Florida School Boards Association, Inc., which is a not-for-profit corporation created to assist in lease purchase financing. The obligation of the district to make lease payments is limited and payable solely from funds appropriated by the district from available revenues. The COPs were issued pursuant to a master lease agreement which, in the event of non-appropriation, requires the district to surrender all leased facilities to the trustee. Over 20% of student stations are in facilities included in the master lease.
Osceola County is located roughly 14 miles south of Orlando and adjacent to Disney World, leading to the county's concentration in tourism. The Walt Disney Co., rated 'A' by Fitch with a Stable Outlook, employs 61,500 employees in Orange and Osceola counties while Osceola's other large employers are largely tourism, retail, and health care related. A combination of the rapid population growth and Florida's recent housing market bubble led to marked growth in assessed value (AV) which increased 140% in five years from fiscal 2003 to fiscal 2008. New construction accounted for approximately 39% of the increase. The current housing market correction has led to moderate 2.6% growth in tax base growth in fiscal 2009 and a 17.5% decrease for fiscal 2010. Unemployment has increased with the economic downturn to 11.8% for August 2009 from 6.8% a year prior.
Although district revenues are vulnerable to state funding fluctuations, the district has maintained stable operations. Despite $22 million in state aid reductions, fiscal 2009 ended with a $5.3 million surplus, increasing the unreserved fund balance to a sound 16% of spending. Fiscal 2010 year-to-date performance indicates a moderate $2 million drawdown due primarily to capital needs for a new textbook adoption. Fitch expects state funding for schools to be unstable over the next few years. The district's above-average reserves should provide it with more than adequate flexibility to adapt to any unplanned revenue reductions.
Debt levels are moderate, especially given recent rapid enrollment growth. Overall debt per capita equals $2,865 per capita and 3.3% of taxable assessed value. The district's five-year capital plan totals a manageable $345.1 million, excluding debt service, and is fully funded. Additional debt plans include $15 million in additional COPs later this fiscal year and $28.6 million in COPs in fiscal 2011. Districts are allowed to use up to 75% of the 1.5 capital outlay millage for COPs debt service (equal to 1.125 mills). While the district currently requires roughly 0.6 mills, the combination of additional debt and potential declines in the tax base could increase the millage rate necessary for COPs repayment to above 1 mill.
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