NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms the 'F1+' rating on the following State of Florida Department of Environmental Projection adjustable rate documentary stamp backed bonds, for which the state provides liquidity upon a failed remarketing:
--$82.7 million Everglades Restoration revenue bonds, series 2007 A-B (multi-modal).
The obligation of the treasury under the standby bond purchase agreement (SBPA) is a limited obligation of the state of Florida, payable from available liquidity in the state treasury. 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 collection/enforcement fees.
KEY RATING DRIVERS
LONG-TERM CREDIT QUALITY: The long-term rating on the documentary stamp tax backed bonds is 'A' with a Stable Rating Outlook, reflecting adequate debt service coverage by an economically sensitive revenue stream derived from real estate and other transactions.
AMPLE LIQUIDITY: The short-term rating is based on the liquidity support provided by the State of Florida Department of Financial Services, Division of the Treasury, in the form of a revolving standby bond purchase agreement. The state has ample liquidity to meet tenders on variable rate debt that has not been remarketed. Funds are conservatively invested and provide very high coverage of outstanding variable rate debt.
LIMITED TERMINATION RISK: Recent amendments to the SBPA reduce the risk of termination based on the long-term rating of the bonds. The standby now requires downgrade by two rating agencies to 'BBB' or lower before termination of the liquidity facility.
Liquidity for bonds in variable rate mode that are tendered but not remarketed is provided by the Florida treasurer through a SBPA that is sized to cover $100 million in principal plus 35 days interest computed at the maximum rate of 12%. The SBPA provides for timely notification of any failed remarketing to enable the state treasurer to purchase any bonds tendered and not remarketed, with legally available funds.
The treasurer is responsible for investing all general revenue, trust, and agency funds of the state, excluding the state pension funds, which are invested by the State Board of Administration. The treasurer maintains seven investment portfolios that reflect different investment priorities. The internal liquidity portfolio, which is used for immediate cash needs of the state, maintains a minimum of $2 billion in highly-liquid investments plus a margin of safety calculated based on the highest quarterly and highest weekly disbursements over a five-year period. As of Aug. 31, 2012, the Treasury held $19.4 billion, of which $8.1 billion was in the internal liquidity portfolio. This portfolio is invested conservatively in highly rated securities, with more than half invested in government and agency securities. These funds are more than sufficient to meet the cash needs of the state including any potential tenders of the bonds. The state does not provide internal liquidity on any other debt.
The 'F1+' rating reflects both the ability of the state treasurer to provide timely payment of the purchase price upon optional or mandatory tender in the event of a failed remarketing of the bonds and the likelihood that the liquidity facility will terminate without a mandatory tender due to deterioration of the bonds' long-term credit, as is expressed in the long-term rating. The short-term rating takes into account both the strength of the liquidity provider as well as the underlying credit quality of the bonds. With an 'A' long-term rating on bonds, Fitch's criteria indicate a short-term rating of 'F1'; however, in this case the rating of 'F1+' reflects a number of factors, including the minimal likelihood that the long-term rating will fall below investment grade and cause a termination without mandatory tender, and the state's history of making legislative and programmatic change to support its ratings.
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 $13.5 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.
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.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;
--'U.S. State Government Tax-Supported Rating Criteria', dated Aug. 14, 2012;
--'Criteria for Assigning Short-Term Ratings based on Internal Liquidity', dated June 15, 2012;
--'Rating Guidelines for Variable-Rate Demand Obligations Issued with External Liquidity Support', dated Feb. 1, 2012.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria
Criteria for Assigning Short-Term Ratings Based on Internal Liquidity
Rating Guidelines for Variable-Rate Demand Obligations Issued with External Liquidity Support
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Source: Fitch Ratings