TEXT - Fitch affirms Florida's Northern Palm Beach Cty Improvement District
Jan 16 - Fitch Ratings affirms the outstanding ratings on the following Northern Palm Beach County Improvement District, FL's (the district) water control and improvement bonds: --$34.5 million Unit of Development 9A (Abacoa Project) water control & improvement refunding bonds series 2003 at 'BBB+'. The Rating Outlook is Stable. SECURITY The water control and improvement bonds are separately secured by special assessments (a drainage tax) levied by the district against all taxable property within the respective development units. The bonds do not constitute a general obligation of the district. The debt service reserve fund is satisfied by an MBIA surety. KEY RATING DRIVERS SOUND LEGAL STRUCTURE AND PROCESS: Drainage taxes are levied against improved properties and constitute a first lien on the property, which is on parity with real estate taxes and superior to other liens including mortgages. The statutory tax collection process is timely and rigorous. MINIMAL CUSHION: Drainage taxes are levied in an amount not to exceed 100% of the assessed benefits for purposes of paying the bonds. However, the principal amount of bonds to be issued may not exceed 90% of the assessed benefits resulting in a low 10% cushion to accommodate delinquencies. ELEVATED TAXPAYER CONCENTRATION: Abacoa continues to exhibit heightened leading taxpayer concentration, with the top 10 representing approximately 30% of the total assessments in fiscal 2011. HIGH DEBT LEVELS: Outstanding debt levels of Unit 9A when coupled with coterminous Unit 9B (not rated by Fitch) remain elevated, but all capital projects are complete and no additional issuance is expected. ROBUST LAND TO LIEN RATIO: The value of land to direct and overlapping debt is high at approximately 14 times, which tempers risk to the district's debt burden and supports Fitch's expectation for continued strong tax collections. STRONG ECONOMIC PROFILE: Jupiter's economy continues to expand, and economic indicators remain positive relative to state and national averages. CREDIT PROFILE Northern Palm Beach County Improvement District is an independent special district of the State of Florida created to provide water management and infrastructure development services to properties in northern Palm Beach County (GO bonds rated 'AAA' with a Stable Outlook by Fitch). EXPERIENCED, SUCCESSFUL DISTRICT The district has extensive experience in the management of infrastructure construction projects, having created 66 units of development since its inception in 1959. The Abacoa unit of development is a mixed-use community located in the Town of Jupiter ('AAA' with a Stable Outlook). Officials report approximately 4,500 built and occupied homes in Abacoa, which is approved for nearly 6,100 residential dwelling units. SPECIAL ASSESSMENTS ON PARITY WITH PROPERTY TAXES The district may levy a drainage tax on all non-exempt property within each unit of development in an amount not to exceed 100% of the benefits assessed thereto for the purpose of paying the principal of bonds. There is no limit on the amount of drainage tax for the purpose of paying interest on bonds. The district engineer determines the assessment of benefits prior to the construction of the improvement plan. The district levies the drainage tax based on land classification and acreage. As these assessments are not ad valorem taxes, they do not depend on the assessed value of the property. The drainage tax is included on landowners' property tax bills issued by the county tax collector, and taxpayers must pay all taxes shown in the tax notice without preference in payment. Drainage taxes constitute a first lien on the property against which they are assessed, carry equivalent weights as liens for state and county taxes, and are superior to all other liens including mortgages. RIGOROUS TAX SALE PROCESS The principal amount of bonds issued for each unit of development may not exceed 90% of the assessment of benefit, providing a 10% cushion to accommodate delinquencies. A timely and rigorous tax collection process provides further assurance to bondholders. Drainage taxes due on Nov. 1 of any given year are levied to pay debt service on bonds coming due the following Aug. 1 and Feb. 1 of the second following year. Tax payments become delinquent on April 1. If delinquent beyond 60 days, they become subject to a tax lien sale by the county tax collector. Proceeds from the tax lien sale must be used to pay delinquent taxes, including delinquent drainage taxes. According to the district, current tax collections continue to average approximately 99%, with total collections, including penalties and interest, typically exceeding 100%. Fitch notes the district is empowered to levy a maintenance assessment unlimited in amount, which is legally available for debt service but not pledged to bondholders. SIGNIFICANT TAXPAYER CONCENTRATION Fitch views as a credit negative the high degree of taxpayer concentration within Abacoa. Land ownership by a number of real estate developers accounts for a substantial portion of the tax base, with the top 10 representing approximately 30% of the total drainage tax levy. The largest taxpayer is Divosta Homes LP, at approximately 9%, a wholly-owned subsidiary of the Pulte Group (rated 'BB' with a Stable Outlook as of August 2012) and the original landowner and developer of Abacoa. Fitch notes that top 10 taxpayer concentration levels favorably declined, from 72% in 2002 to 41% in 2008 but decelerated over the next four years to 30% in 2012. While a slowdown in activity is consistent with housing market pressures, Fitch expects demand to pick up over the near term as housing continues to recover. Property values remain high relative to the rate of the drainage assessment and debt outstanding in Abacoa, which partially mitigates concentration risk. The drainage taxes assessed within each unit of development are considered comparable to similar units of development located in northern Palm Beach County. ELEVATED DEBT BURDEN Overall debt represents 7.5% of market value and $6,865 on a per capita basis, which are levels that Fitch considers high. Debt service is level through final maturity and the bonds pay interest at a fixed rate. The improvement plans has been completed. Capital needs are minimal and will be funded from the levy of the maintenance assessment. No additional debt is anticipated. BIOTECH DRIVES LOCAL ECONOMY Jupiter, located on the eastern coast of Florida in Palm Beach County, has continued to expand its economy in recent years, including a notable biotech sector. In addition to the Scripps Research Institute, which has had a presence in the town since 2005 and moved into a permanent facility in the town in 2009, the Max Planck Institute has also recently selected Jupiter to act as the base of its U.S. operations. The Max Planck Institute has begun operations in the town and opened a permanent facility this year. Both institutes expect to increase employment over the next few years. Other recent economic developments include G4 Wackenhut's, an international security firm, movement of its North American headquarters to the town as well as growth in the industrial and aerospace engineering sectors, as the town benefits from its location roughly 20 miles for the Palm Beach County International Airport. Economic indicators compare favorably to those of the state and nation. The unemployment rate has decreased to 6.2% for October 2012 from 7.5% a year prior, remaining below state and national averages. Wealth levels remain quite high with per capita money income at approximately and 150% of both state and national levels.