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TMCNet:  Fitch Rates Orange County FL School Board Leasing Corp.'s COPs 'AA'; Outlook Stable

[March 04, 2014]

Fitch Rates Orange County FL School Board Leasing Corp.'s COPs 'AA'; Outlook Stable

NEW YORK --(Business Wire)--

Fitch Ratings has assigned an 'AA' rating to the following Orange (News - Alert) County School Board Leasing Corporation, FL's (the corporation) certificates of participation (COPs):

$65,525,000 million COPs, series 2014A.

The COPs are scheduled to price via negotiation, but a final pricing date has not yet been determined. Proceeds will be used to refund a portion of the corporation's outstanding series 2004A COPs.

In addition, Fitch affirms the following ratings:

--$1.1 billion outstanding COPs at 'AA';

--Implied unlimited tax general obligation (ULTGO) for the Orange County FL School District (the district) at 'AA+'.

The Rating Outlook is Stable.

SECURITY

All corporation COPs are secured by lease payments made by the Orange County FL School Board (the board), subject to annual appropriation, to the corporation under a master lease purchase agreement. In the event of less than full appropriation the trustee may force the board to surrender possession of all leased facilities under the master lease to the trustee, for disposition by sale or re-letting of its interest in such facilities.

KEY RATING DRIVERS

STRONG FINANCIAL MANAGEMENT: The district's conservative budgeting practices and policies have contributed to historically sound operations and strong reserves even during a period of volatile levels of state funding and declines in property values. The 'AA+' implied ULTGO rating reflects the district's solid financial performance and expected maintenance of strong reserves.

AMPLE LIQUIDITY: The district benefits from the financial flexibility afforded by the voter-approved one mill levy for operations and a half-cent sales tax which supports capital needs. Although both levies expire in fiscal 2015, the district plans to seek renewal of the sales tax this fall. The district's large level of capital and operating reserves, recent and projected improved levels of state funding, and projections for growth in the tax base mitigate concerns of the potential discontinuation of these recurring revenues.

DEPENDENCE ON (News - Alert) STATE REVENUES: Like most Florida school districts, the district remains dependent upon state funding which has fluctuated in recent years.

MODERATE DEBT LEVELS: Annual debt service expenditures consume an affordable share of the district's budget due in part to slow amortization. Key debt ratios are moderate. The district's sizeable capital plan is fully funded from a variety of existing capital reserves and recurring revenue. No additional new money debt is anticipated at this time.

EXPANDING ECONOMY: Although tourism based, the area has expanded its educational, healthcare and biotechnical presence. Unemployment levels have improved notably and wealth levels are at or slightly below state averages.

COPS SUBJECT TO APPROPRIATION: The 'AA' COPs rating reflects the district's general credit quality, the district's obligation to make annually appropriated lease payments under a master lease structure, and the essentiality of leased assets.

RATING SENSITIVITIES

CONTINUED STRONG FINANCIAL MANAGEMENT: The rating is sensitive to shifts in fundamental credit characteristics including the district's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Orange County (implied ULTGOs rated 'AAA' by Fitch), home to Walt Disney (News - Alert) World, had a 2011 population of 1.2 million. The boundaries of the school district are coterminous with the county.

HISTORICALLY STRONG FINANCIAL OPERATIONS

The district has been consistent in achieving surplus general fund operations for the last ten fiscal years. These results stem primarily from its conservative budgeting practices and effective management of resources. For fiscal 2013, the district posted a $33.3 million general fund surplus, after transfers, equivalent to 2.6% of spending. This follows a $42.3 million net operating surplus for fiscal 2012. The positive results were achieved due mostly to a combination of utility costs savings as a result of recent school renovations, lower costs derived from unfilled positions and the postponement of certain non-recurring initiatives representing 1% - 2% of spending. Unrestricted fund balance improved to a solid $382.6 million or 30% of spending.

Management has indicated to Fitch that it expects a moderate surplus again for fiscal 2014 as certain one-time planned expenditures carried over from fiscal 2013 continue to be delayed.

The district continues to benefit from a one-mill operating levy which was approved by voters in Nov. 2010. This additional operating levy was approved for four years begnning in fiscal 2012 and provided $84 million in tax revenues in fiscal 2013 (6.5% of total general fund revenues). Management is contemplating asking voters to renew this operating millage, but is waiting for more information on expectations for state aid for the next fiscal year.

Overall tax rates remain moderate compared to other school districts at 8.362 mills (including the voted one-mill additional operating levy). State statute limits the total non-voted millage rate that may be levied for operations and capital funds to 10 mills, leaving the district with some flexibility. State funding represents 56% of fiscal 2014 budgeted revenues evidencing the district's reliance on the state.

The district's fiscal 2015 budget is in preliminary stages and the major drivers include salaries and increased health and retirement costs. Management does not expect any material changes in its current level of programming.

AFFORDABLE DEBT BURDEN

Overall debt ratios are moderate at 2.8% of taxable value and $2,100 per capita. The district has no current plans for additional debt. Capital improvements are scheduled to be funded from a combination of existing reserves in the district's capital projects fund which total $863 million and revenue from the voter-approved capital outlay sales tax through December 2015.

The district's annual debt service budget is primarily driven by its $1.3 billion in outstanding COPs. While any legally available revenue can be used for COP debt service, the district has historically made payments from the 1.5 mill capital outlay tax. With the district's taxable assessed value (TAV) for fiscal 2013 of $89.4 billion, a 1.17 mill rate generates sufficient revenues, assuming a 96% tax collection rate, to cover maximum annual COP debt service of $101 million (fiscal year 2023).

The district has $195 million in outstanding variable rate COP debt which is hedged with fixed interest rate swaps. Fitch considers the risks associated with these transactions to be moderate considering the debt represents 15% of the district's total direct debt and its current strong liquidity position mitigates market risks.

The district has benefitted from its voter approved half-cent capital outlay sales tax which provides over $160 million in annual revenue. The sales tax, approved by voters in 2002, is effective from Jan. 1, 2003 through Dec. 31, 2015. Such sales tax revenues are available to service COP debt if necessary. The availability of these sales tax revenues has helped the district manage the growth of its student base and keep up with necessary improvements, expansions and maintenance as necessary to maintain adequate facilities for its students. The district plans to ask voters to approve a renewal of this levy in November 2014. While the substantial capital reserves provide funding for the near to medium term in the event a renewal is not approved, Fitch believes an additional source of capital funding will be needed at some point.

All district employees participate in the state administered retirement system. Pension and OPEB costs are affordable. Total carrying costs for pension, OPEB pay-go and debt service equated to an affordable 8.5% of total fiscal 2013 governmental spending. Carrying costs are somewhat depressed by slow debt amortization of only 32% in 10 years.

EXPANDING ECONOMY

The county's economy anchors the central portion of the state, as professional and business services, education, health care, and biotechnology augment the historically strong tourism sector. Two of the leading employers in the county are health care systems, Adventist Health System and Orlando Health, which together employ 32,000 workers.

Tourism remains a considerable economic force. Walt Disney World is the county's largest taxpayer at 8% of taxable assessed value and the largest employer. Nine of the top ten taxpayers, representing 16% of AV, are in the hospitality industry. While Disney and Universal are firm anchors to the historically volatile tourism sector, Fitch believes the increasing diversification of the area economy enhances stability and the prospects of future economic growth.

In fiscal 2013 and 2014, the tax base reversed a four year trend of contraction, stabilizing in fiscal 2013 and expanding by 4% in fiscal 2014, boosted by new construction coming onto the tax rolls. The 24% cumulative tax base decline between fiscals 2009 and 2012, although substantial, was not as severe as that which occurred in other parts of the state. Fitch anticipates continued near-term expansion of taxable values as the economic recovery continues.

WEALTH LEVELS ARE LOW; UNEMPLOYMENT RATES IMPROVE

County per capita income levels fall below state and national averages, reflecting the substantial employment in the tourism industry. Wealth indicators steadily declined relative to state and national benchmarks between 2007 through 2011, reflective of the severity of the recession in central Florida. Fitch expects this trend to reverse as the area economy recovers. County employment trends demonstrate strong gains of 3.6% in 2012 and 2.8% in 2013. Unemployment rates have continued to decline in tandem with the employment growth from a high of over 11% in 2010 to 5.4% as of December; well below 7.4% of the prior year and lower than the current state and national averages.

The district is the fourth largest in Florida and has a current enrollment of 187,547. The district is projecting 1% - 2% annual enrollment growth over the next few years.

Additional information is available at 'www.fitchratings.com'.

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 (News - Alert) Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=822454

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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