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Fitch Rates Hillsborough County School, FL's $127MM COPs 'AA'; Outlook Stable
Posted February 22, 2012
We Recommend...
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA' rating to the following bonds of the Hillsborough School Board Leasing Corporation, Florida (the district):
--$126.9 million refunding certificates of participation (COPs) (school board of Hillsborough County, Florida master lease program), series 2012A.
The bonds are expected to sell on Feb. 23rd via negotiation. Proceeds will refund certain outstanding COPs maturities for debt service savings.
In addition, Fitch affirms the following ratings:
Hillsborough School Board Leasing Corporation:
--$926 million of outstanding COPs at 'AA'.
Hillsborough County School District:
--Implied general obligation (GO) bonds at 'AA+';
--$230.3 million of outstanding community investment tax (CIT) sales tax revenue bonds at 'BBB+'.
The Rating Outlook is Stable.
SECURITY
The COPs are secured by lease payments made by the district to the trustee pursuant to a master lease purchase agreement. Lease payments, equal to debt service and applicable fees, are payable from legally available funds of the district, subject to annual appropriation. The district is required to appropriate funds for all outstanding leases on an all-or-none basis.
In the event of non-appropriation, all leases will terminate, and the district would, at the trustee's option, have to surrender all lease-purchased projects for the benefit of owners of the COPs which financed or refinanced such projects.
The CIT bonds are secured by a 30-year voter-approved community investment tax, which is set to expire at the end of calendar year 2026, two months after the final maturity of the bonds. According to an interlocal agreement between the county and the district, the district receives 25% of total revenue collected within the county.
KEY RATING DRIVERS
AMPLE FINANCIAL FLEXIBILITY: Robust reserves and solid liquidity levels characterize the district's strong financial management and mitigate the risks inherent in recent state funding losses.
DIVERSE ECONOMY: The county serves as the economic anchor of western Florida, with significant employment in the professional and business services and education and health services. Signs of economic stabilization are evident subsequent to the broad retracting of employment metrics as a result of the recent recession.
LOW DEBT BURDEN: The district's debt burden is low, and debt service requirements do not pressure the financial profile. The district has evidenced a willingness to control future capital spending.
COPs APPROPRIATION RISK: The 'AA' rating on the district's COPs is based on the district's general creditworthiness, as well as the obligation to make lease payments, subject to annual appropriation. The all-or-none appropriation feature of the master lease and the essential nature of leased assets, which are subject to surrender in the event on non-appropriation, tempers this risk.
NARROW COVERAGE & RESIDUAL REVENUES ON CIT SALES TAX REVENUE BONDS: The 'BBB+' rating incorporates the slim coverage of maximum annual debt service (MADS). Fitch takes comfort that approximately $25 million of unpledged residual revenue, equal to an additional 1.2 times (x) MADS, which the district has indicated it would utilize if necessary to compensate for any deficiency in pledged revenues.
CREDIT PROFILE
AMPLE RESERVES
The district has consistently demonstrated superior financial performance, with robust reserves that are above average for a Florida school district. The district ended fiscal 2011 with a $17.9 million surplus (equal to 1.3% of spending) and an unrestricted general fund balance (the sum of committed, assigned, and unassigned fund balance under GASB 54) equaling 24% of spending. The district handily met its fund balance policy of maintaining an unassigned reserve equal to or greater than 5% of total anticipated revenue for the following year plus carry-forwards.
The vast majority of the unassigned fund balance is designated for future expenditures in specific areas but could be made available for general purposes if needed. Fitch expects the unrestricted reserves to fluctuate over time as these planned expenditures are funded. but the unrestricted balance should remain strong for the rating level.
EFFECTIVE FINANCIAL CONTROLS
Management implemented over $135 million in reductions since fiscal 2008 in response to revenue deterioration. Fitch believes that the district has the flexibility to implement further reductions without compromising pedagogical functions.
The adopted fiscal 2012 budget offset a $100 million reduction in state funding through the utilization of the $40 million in JOBs funds along with a $60 million savings realized through pension reform. Management reports that expenditures and revenues are generally tracking budgeted levels. Fitch anticipates that the district will exceed its fund balance policy at the conclusion of the fiscal year.
The district expects that it can reduce fiscal 2013 spending to compensate for any declines in state funding. Management expects to set forth a balanced budget that will allow it to adhere to its fund balance policy. Fitch has confidence that management can implement necessary expenditure reductions, given its past successes.
BROAD EMPLOYMENT BASE RECOVERING FROM ECONOMIC DOWNTURN
Hillsborough County (implied GO rated 'AAA' with a Stable Outlook by Fitch) is coterminous with the district and serves as the economic center for Florida's Gulf Coast with major sectors in business services, and health care and education. The long-term profile of the county economy is strong and diverse. Signs of recovery from the recent recession are evident. An uptick in employment has driven down the November 2011 unemployment rate to 9.8%, a healthy improvement from the 12.3% of the previous year. Wealth levels are around or slightly below national averages.
Rapid population growth has historically driven corresponding enrollment growth rates in the district. Recent enrollment growth has stabilized with a 1% increase in fiscal 2012. The district expects moderate enrollment growth to continue for the next few years.
FAVORABLE DEBT PROFILE
Overall debt levels are low at $1,911 per capita and 2.7% of market value and debt service payments are a modest 5.5% of spending. Slightly below-average amortization at 44.8% of principal retired within 10 years is line with amortization trends for other Florida school districts. Variable rate debt equals 11.7% of total district debt, a level that Fitch believes can be well-managed by a credit in this rating category.
The district's facilities are reportedly in good shape with capital needs greatly reduced after a building push earlier in the decade driven by escalating enrolment and state mandated class size requirements. The fiscal 2012-2016 CIP totals a modest $263 million, excluding debt service payments, with routine repair and maintenance accounting for the majority of needs. Revenue from the 1.5 mill capital outlay levy, after debt service for the COPS, provides the majority of revenue. No additional debt is planned.
Pension obligations are limited to the district's participation in the state-wide multiple-employer pension plan (FRS). For fiscal 2011, the district's annual contribution was $108 million, equal to a manageable 7.8% of spending. FRS as a whole remains adequately funded at 80.4% (adjusted by Fitch to a 7% investment return).
The district offers an implicit subsidy for other post employment benefits as required by state law. The district continues to fund the liability on a pay-as-you-go basis, with a fiscal 2011 contribution of $6.6 million. Fitch believes that full funding of the $17.5 million annual required contribution, equal to an easily managed 1.3% of spending, would not pressure the debt profile. The district has assigned $29.1 million of general fund balance to fund a portion of the net OPEB obligation.
COPS DEBT SERVICE
The district has historically paid COPs debt service with revenue from its capital outlay millage, although it may utilize all legally available revenues. Current legislation allows Florida school districts to levy 1.5 mills for capital outlay. Three-fourths (1.12) of the 1.5 mills levy is available for COPS debt service. The district used 1.08 mills for COPS debt service for fiscal 2011, leaving a healthy cushion beneath the state cap.
The master lease structure on the district's COPs is strong, requiring an all-or-none appropriation. In the case of non-appropriation, the trustee is authorized to require the district to surrender use of all facilities under the master lease, which would amount to approximately 20% of the district's total facilities. Fitch considers this a very strong incentive to appropriate.
NARROW SALES TAX COVERAGE
CIT sales tax revenues have begun to stabilize and return to modest growth after exhibiting significant volatility over the past few years. Fiscal 2011 revenues covered MADS by 1.09x, versus the 1.05x of the previous year. Fitch takes comfort that pledged revenue has grown on a year-over-year basis for all but one month since the beginning of fiscal 2011. District residual revenues that will total about $25 million in April are available to use if necessary to compensate for a deficiency in the current year's pledged revenues, although they are not pledged. The debt service reserve account is funded by a surety from Ambac.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and the National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/report...
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/report...
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