Feb 15 - Fitch Ratings assigns an 'A' rating to the following state of
Florida Department of Environmental Protection bonds:
--$43.04 million Everglades Restoration revenue bonds, series 2013A.
The bonds are expected to sell via competitive bid on 18 hours' notice as early
as Feb. 25, 2013.
In addition, Fitch affirms the 'A' rating on the following:
--$1.9 billion Florida Department of Environmental Protection Preservation 2000
and Florida Forever revenue bonds;
--$204.5 million Florida Everglades Restoration bonds.
The Rating Outlook is Stable.
The bonds are secured by a portion (63.31%) of collections of the state
documentary stamp tax, which is levied primarily on real estate transfers, after
payment of an 8% general fund administrative fee and $10 million in
KEY RATING DRIVERS
VOLATILE REVENUE STREAM: The pledged revenue stream, which is derived from
economically sensitive real estate and other transactions, has historically been
SATISFACTORY DEBT SERVICE COVERAGE: Debt service coverage, although reduced from
high levels in the housing boom of the last decade, remains adequate.
Legislative action to increase the revenues available to bondholders provides
STATE NON-IMPAIRMENT COVENANT: The state covenants to not reduce the allocated
percentage of excise taxes securing the Florida Forever, Everglades, and
Preservation 2000 bonds.
UPCOMING DECLINE IN DEBT SERVICE REQUIREMENTS: A large portion of outstanding
parity debt is retired by fiscal 2014, resulting in a steep drop in debt service
STATE CONTROL OF PROGRAM: The state controls future debt issuance and has
flexibility regarding offerings under the programs.
The rating is sensitive to the degree of volatility in the revenue stream.
The documentary stamp tax revenue that secures the bonds is derived primarily
from real estate activity, with additional revenues coming from other
transactions such as car loans. Documentary stamp tax revenues have historically
been quite volatile and rose dramatically during the boom in real estate through
the middle of the last decade, from $1.2 billion in fiscal 2000 to a high of
$4.1 billion in fiscal 2006. As the economy entered recession, with the Florida
housing market severely affected, these transactions and the associated
documentary stamp tax revenues dropped precipitously.
Revenues bottomed out in fiscal 2010 at $1.1 billion before recovering slightly
in fiscal 2011, increasing 7.2% to $1.2 billion. Revenue growth has continued
and, as an indicator of some recovery in the Florida economy, revenues increased
9.1% in fiscal 2012, 5.4% higher than forecast. Revenue growth has been strong
through the first six months of fiscal 2013, with documentary stamp tax revenues
increasing 29% year-over-year, higher than the 20% increase that was forecast.
In response to the steep revenue declines, the state legislature took action in
2009 to bolster the revenue stream available to pay debt service if pledged
revenues are insufficient. State statute was revised to expand the revenues
available for debt service to include the balance of non-pledged documentary
stamp tax revenues, less a small amount needed for debt service on other bonds.
In addition to the inclusion of the non-pledged portion of revenues, the
legislation waives the 8% service charge and other collection costs if pledged
revenues are insufficient. The pledge underlying the bond security, however,
remains at 63.31% of revenues.
The inclusion of the balance of the revenues clearly enhances potential coverage
of debt service requirements. Fiscal 2012 pledged revenues provided 1.7 times
(x) coverage of annual debt service and 1.7x coverage of peak debt service,
which occurs in fiscal 2013. When the additional revenues are included, that
coverage increases to 2.9x on a maximum annual basis.
The state has levied documentary stamp taxes for more than 70 years and has
issued land acquisition bonds of several types since 1964. The state began
issuing Preservation 2000 bonds in 1991 and Florida Forever bonds in 2001,
pursuant to constitutional amendments. The two programs provide for revenue bond
issuance to acquire land and water areas for conservation, recreation, water
resource development, and preservation. State law now limits issuance under the
Preservation 2000 program to bond refundings, and the state has authorized
issuance under the Florida Forever program to a maximum of $5.3 billion.
Borrowing is authorized annually and the state has not authorized additional
borrowing since 2008. No more than $600 million of pledged taxes may annually be
used for debt service on Preservation 2000 and Florida Forever bonds.
Everglades Restoration revenue bonds, which since 2006 have had a parity lien on
the documentary stamp tax revenues, fund the acquisition and improvement of land
and water areas, including water supply and flood protection, under a $12.5
billion Everglades Restoration program, a joint federal, state, and local
endeavor. Everglades Restoration bonds were approved by constitutional amendment
in 1998, at that time payable from a junior lien on pledged documentary stamp
tax revenues. In 2006, the state legislature elevated the Everglades Restoration
bond lien to parity status with the Preservation 2000 and Florida Forever bonds.
The amount of Everglades bonds authorized is currently $500 million. The current
offering will finance grants to two local governments in the Florida Keys to
finance the cost of constructing sewage collection, treatment, and disposal
The additional bonds test takes into account debt service under all three
programs. The additional bonds test requires 1.5x coverage of maximum annual
debt service (MADS) by pledged revenues in any 12 consecutive months of the
prior 24 months. Additional bondholder protection is provided by covenants that
ensure the allocated share of revenues is not reduced, the state's degree of
control and flexibility in issuing future debt, and the rapid amortization of
outstanding debt. With MADS occurring in fiscal 2013, annual debt service
requirements drop steeply in fiscal 2014 due to the retirement of Preservation