TEXT - Fitch rates Village CDD No. 5, Florida special assessment bonds

Wed Jan 16, 2013 5:40pm EST

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Jan 16 - Fitch Ratings has assigned an 'A' rating to the following Village
Community Development District No. 5 (CDD No. 5 or the district), FL bonds: 

--$14.8 million special assessment revenue refunding bonds, series 2013 (Phase 
I);

--$22.9 million special assessment revenue refunding bonds, series 2013 (Phase 
II).

The Rating Outlook is Stable.

SECURITY 

The phase I and phase II bonds are secured by special assessments levied upon 
and collected from property owners within the phase I and phase II areas, 
respectively of CDD No. 5.  Together, the phase I and phase II areas comprise 
the entirety of the district.  Revenues from owners who have already prepaid 
their assessments prior to issuance are not included as pledged security.  
Prepayments following bond issuance must be used to redeem bonds. Each series of
bonds provide for a debt service reserve fund (DSRF) to be funded from excess 
special assessments up to approximately 10% of debt service. 

KEY RATING DRIVERS

POPULAR DEVELOPMENT FOR RETIREES:  CDD No. 5 is part of the Villages, a large 
and very successful self-contained retirement community in central Florida with 
numerous amenities and entertainment venues.

FULLY DEVELOPED HIGHLY OCCUPIED TAX BASES:  The phase I and phase II areas upon 
which special assessment securing bonds are levied are 100% residential, fully 
built out and occupied with over 3,000 homes each.  

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 timely tax 
certificate process in Florida helps ensure that cash flow for debt service is 
maintained in case of tax delinquencies.

SOLID LAND TO LIEN RATIOS: The value of the land represented by assessed value 
to overall debt (land to lien) for the phase I and phase II areas are high at 
nearly 27x and 19x, respectively providing a strong economic basis for continued
demand for tax certificates.  

LIMITED TAX FLEXIBILITY: Special assessments are capped at a rate to provide a 
10% margin of coverage which could offset delinquencies/unsold tax certificates 
totalling 6.7% of total accounts.  

DELAYED FUNDING OF DSRF:  The issuer intends to fund the DSRFs from excess 
revenues generated primarily by levying special assessments at 1% over the bond 
interest rate.  The uncertainty of funding is mitigated by projected excess 
revenues which will be sufficient to fully fund both reserves within 12 to 18 
months after issuance.   

CREDIT PROFILE

Community development district No. 5 was established in 2002 and encompasses 
1,497 acres in Sumter County.  The district is one of 13 districts within the 
Villages created to finance and maintain infrastructure within its boundaries.  

HIGHLY SUCCESSFUL RAPIDLY GROWING RETIREMENT DEVELOPMENT

The Villages is a retirement community encompassing over 21,000 acres located 
primarily in Sumter County (implied GO rated 'AA-') in central Florida.  A 
portion of the Villages spills over into Marion County as well as Lake County 
(implied GO rating of 'AA-').  Begun in the 1960s, the development has 
experienced extraordinary growth and currently contains over 46,300 homes.  At 
build-out, which management projects will occur in three years, the Villages is 
expected to have 110,000 residents and over 56,000 homes.

The developer of the Villages is The Village of Lake-Sumter, Inc., a 
family-owned business established for the single purpose of developing the 
Villages.  While control of most of the residential areas has devolved to 
residential owners, the developer still owns and manages most of the commercial 
properties within the development overall.

CDD ROLE AND AUTHORITY

Community development districts are authorized to levy and collect special 
assessments to service bonds and maintenance assessments to fund district 
operations, among other powers.

The district is governed by a five member board of supervisors elected by 
qualified district residents for four year staggered terms.  The board employs a
district manager to operate and maintain district assets. 

 

CDD No. 5 is an independent municipal entity with a representative board elected
by residents. Fitch believes the district's independent governance structure 
insulates it from a recent tentative IRS finding that the commercial Village 
Center Community Development District (VCCDD) is not a 'political subdivision' 
of the state.  The ruling indicates that bonds issued by VCCDD are therefore not
tax exempt, because a controlling portion of the VCCDD governing board was 
elected by a single property owner. 

CDD 5 IS FULLY DEVELOPED AND NEARLY 100% OCCUPIED

The district is entirely residential and fully built out.   Development occurred
in two phases; phase I financed with series 2002 bonds while phase II 
infrastructure was funded with the proceeds of bonds issued in 2003.  Each 
series is separately secured by special assessments levied within their 
respective areas serviced by the completed project.  Both series will be 
refunded with the proposed issue.   

Both development areas are much smaller than most municipal issuers at a square 
mile each, but relatively large in comparison with many other CDDs.  The phase I
area consists of 696 acres and 3,158 units in total.  The phase II area 
incorporates approximately 712 acres and 3,241 homes. 

Each area also contains recreational tracts, subject to a reduced special 
assessment rate, with revenue yields of no more than 1.5% of total assessments 
in either phase.  Typical of residential-only subdivisions, both assessment 
bases are diverse with the top ten payers accounting for only 1.3% and 2.1% of 
total assessments in phase I and phase II, respectively.   

SOLID LAND TO LIEN RATIO, SOUND TAX COLLECTIONS STRENGTHEN CREDIT

Assessed values for both the phase I and phase II areas are substantial due to 
their advanced state of development with taxable assessed value of $536 million 
in phase I and $541 million in phase II.  Modest leverage for both areas is 
indicated by solid land to lien ratios of nearly 27x and 19x for phase I and 
phase II, respectively, including overlapping tax-supported debt of the county 
and school board.  Given that development is complete, the district board has no
plans for additional debt.    

Property tax collections for CDD No. 5 residents have been strong, averaging 
close to 100% net of the allowance for early prepayment discount.  The district 
levies taxes and assessments assuming that all property taxpayers will take 
advantage of the state's 4% early payment discount.  Historically, prepayment 
discounts have resulted in a 3.7% reduction annually in gross assessment 
collected.     

EXCESS LEVY WILL PROVIDE ADDITIONAL DEBT SERVICE COVERAGE

Special assessments are generally sized in aggregate to provide narrow coverage 
of annual debt service with any excess due mostly to some portion of taxpayers 
failing to take advantage of the 4% prepayment discount.  However, the district 
intends to levy assessments at a level equivalent to an interest rate that is 
about 1% above the interest rate on the bonds as allowed by Florida statutes.  

At historical rates of collections, the district projects that the higher level 
will produce average excess coverage of debt service of about 1.10x or higher 
for each series over at least the first 13 years of the 20 year bond term before
gradually decreasing.  Based on the average annual debt service assessment per 
unit, excess revenues would provide sufficient coverage for property tax 
delinquencies (absent tax certificate sales), well above the level of historical
delinquencies.  

Bond provisions do not mandate that the district levy special assessments above 
the amount required for debt service. However, district officials indicate that 
they plan on using excess assessment revenues to fund capital projects. 

DELAYED FUNDING OF DSRF; LOW FUNDING REQUIREMENT

The DSRFs will not be funded with bond proceeds but from excess revenues 
generated by the over levy of special assessments. Fitch does not consider this 
to be a major risk as the projected 10% excess coverage should be sufficient to 
fulfil the reserve requirement during the first full year of the levy in fiscal 
2014. Fitch notes that the DSRF does not enhance long-term credit quality as the
funding level is minimal and provides little protection should there be a large 
fall-off in tax collections.   

AREA ECONOMY BOLSTERED BY THE VILLAGES

The presence of the Villages has been the catalyst for economic expansion in 
Sumter County and surrounding areas.  Prior to the Villages, the economy was 
based on agriculture and corrections.  At present, Village residents comprise 
over half of the county's population and were primarily responsible the county's
5.8% average annual population growth between 2000 and 2010.  The Villages and 
the Villages Regional Medical Center are the county's largest and third largest 
employers.    

Employment levels within Sumter County increased an average of 7.2% between 2003
and 2012 attributable as the growing population fuelled demand for construction 
and services.  Unemployment rates did shoot up to nearly 10% in 2010, but have 
come down since.  The October 2012 unemployment rate of 6.4% was well below the 
state and national averages.  Wealth indices are below the state and national 
averages; per capita income for Sumter County is 94% and 90% of the state and 
national benchmarks.  This is most likely due to the large number of older 
residents on fixed incomes which Fitch views as a relative risk to future 
economic growth.
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