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Fitch Rates Manatee Port Authority, FL's Non-AV Bonds 'AA+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'AA+' rating to the following Manatee County Port Authority, Florida (authority) obligations:

--$37 million revenue refunding bonds, series 2012A and 2012B.

The bonds are expected to sell the week of Oct. 22 via negotiation. Proceeds are being used to refund the authority's outstanding revenue bonds, series 2002A and 2002B and refund notes payable to the Florida Local Government Finance Commission.

In addition, Fitch affirms the following Manatee County, Florida ratings:

--$9.6 million general obligation (GO) bonds at 'AAA';

--$111.9 million non-ad valorem revenue bonds at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by pledged revenues consisting of 1) net port revenues and 2) legally available non-ad valorem (non-AV) revenues of the county pursuant to an interlocal agreement between the authority and the county. The latter pledge is the basis for the 'AA+' rating.

In the agreement, the county has covenanted to budget and appropriate, by amendment if necessary, from legally available non-ad valorem revenues (CB&A) sufficient funds to replenish any deficiencies in the cash-funded debt service reserve fund (DSRF).

KEY RATING DRIVERS

STELLAR CREDIT CHARACTERISTICS: The county's exceptional credit profile includes strong financial reserves buttressed by proactive management, a modest and rapidly amortized debt load and a diverse and strengthening economy.

STRONG COUNTY CB&A PLEDGE: The rating of 'AA+' on the authority revenue bonds is based on the county's CB&A pledge, which is on parity with the county's non-ad valorem debt, and reflects the elimination of legal provisions applicable to the bonds to be refunded which allowed for the release of the CB&A pledge under certain conditions.

NON-AV REVENUES PROVIDE SOLID MADS COVERAGE: Available non-AV revenues of the county provide ample coverage of maximum annual debt service (MADS) of bonds secured by the county's CB&A pledge. These revenues stabilized in fiscal 2011 after four years of decline.

PRUDENT FINANCIAL MANAGEMENT: County financial operations are conservatively managed evidenced by ample reserves and solid liquidity. Officials have made significant spending cuts to counter sizable declines in revenues. More recently, the county is utilizing part of its extensive reserves to maintain critical levels of service but under the multi-year spending plan, balances will remain well above the county's policy minimum of 20% to expenditures.

DIVERSIFIED ECONOMY EXPERIENCES HEALTHY RECOVERY: Economic drivers include a diverse mix of services, retail, manufacturing and tourism. Strong job growth, recently increasing housing values and expanding building permit activity are indicative of a strengthening recovery.

MANAGEABLE LONG TERM LIABILITIES: The county's debt load is modest with direct debt rapidly amortized. Pension and OPEB liabilities are moderate and do not pressure spending.

CREDIT PROFILE

REVENUE BOND RATING BASED ON CB&A PLEDGE

The authority's 2012 revenue bonds are first payable from authority net revenues and then backed by the county's CB&A pledge, on parity with the county's own non-AV bonds, to replenish any draws from the cash-funded DSRF. The CB&A DSRF deficiency make-up provides the ultimate credit support for bond repayment given thin debt service coverage from authority net revenues. Although the DSRF has never been drawn upon, net revenues from port operations have been volatile and recent declines have left debt service coverage at about 1.0x or slightly lower.

The 'AA+' rating on the 2012 revenue bonds reflects strong non-AV revenue coverage on county CB&A bonds and the elimination of provisions specific to prior authority revenue bonds that allowed for the release and reinstatement of the CB&A pledge under certain conditions.

STRONG MADS COVERAGE FROM RECURRING NON-AV REVENUES

CB&A MADS coverage from available recurring non-AV revenues, including an amount which would be required to refill the series 2012 DSRF, is robust at over 4.5x. Taking into account essential service expenditures which must be funded ahead of debt service, MADS coverage remains very healthy at 1.49x MADS. Additional available funding sources include sizable unrestricted reserves in the general fund and transportation trust fund totaling over $100 million.

The county's non-ad valorem revenue base is both broad and diverse. Chief sources of revenue include the half-cent sales tax, gas taxes, and service charges. Recurring legally available non-ad valorem revenues grew a modest 1.2% in fiscal 2011 after four consecutive years of recession-induced declines totaling 14%. The recent gain was driven primarily by increases in the half-cent sales tax and state revenue sharing allocations and growth in service charge revenues.

ELIMINATION OF RELEASE PROVISION ENHANCES CREDIT

Proceeds of the 2012 bonds, in conjunction with other funds, will enable the authority to defease all of its outstanding bonds. A new interlocal agreement will eliminate a provision in the original that allowed the county to release the CB&A pledge upon meeting specified net revenue coverage targets. The pledge was then subject to reinstatement if net revenue coverage levels subsequently declined. While the practical effect was to maintain the CB&A pledge over the life of the issue, Fitch views the unconditional county pledge as a credit positive, underscoring the county's commitment to support the bond debt service.

WELL-MANAGED FINANCIAL OPERATIONS

County finances are prudently managed, characterized by strong reserve levels and ample liquidity. Officials have implemented spending reductions in response to severe multiple year declines in property tax revenues, the largest revenue source. Cost-cutting measures include personnel and service reductions, reduced capital spending and technology improvements. As a result, general fund spending fell by over 16% between fiscals 2008 and 2010.

More recently and in light of ongoing property tax contraction, management decided to utilize a portion of its reserves to alleviate additional cuts to critical programs. Additional operating fund balance drawdowns are planned over the next four years totaling approximately $45 million. Despite the planned use of reserves, general fund balance would still be maintained at a level well above the county's minimum target balance of 20% of expenditures.

The county reported a budgeted $11.9 million general fund balance drawdown in fiscal 2011 leaving unrestricted fund balance (the sum of committed, assigned and unassigned according to GASB 54) at a still-sizable $104 million or 46% of expenditures. For fiscal 2012, officials are projecting a general fund net operating deficit of approximately $15 million; close to the budgeted $16 million net operating loss. Falling property tax revenues are only partially offset by increased state revenue sharing receipts. Fiscal 2012 expenditures are in line with fiscal 2011 spending.

The fiscal 2013 budget provides for an average 3% increase in employee salaries, the first increase in six years, and adds approximately $1.7 million to the sheriff's department budget. Increases in compensation will be balanced with modest reductions in personnel, lower benefit costs and a modest gain in intergovernmental revenues. The budget proposes a general fund drawdown of about $15 million.

DIVERSIFIED ECONOMY EXPERIENCES A HEALTHY RECOVERY

The county's economic base is diversified with major sectors consisting of services, retail and manufacturing. Tourism and agriculture are also important components of the local economy. After losing nearly 14% of its employment base between 2006 and 2010, the county is experiencing a robust jobs recovery that appears to be strengthening. Employment increased by 1.6% in 2011 over 2010 with growth extending into 2012. July 2012 employment increased year over year by a rapid 2.2%.

As a consequence of the county's job recovery, unemployment rates have fallen from over 12% in 2010 to the 9% to 10% range in recent months. The July 2012 unemployment rate of 9.7% was down from 11.6% in the prior year, but still exceeds the state and national benchmarks.

Manufacturing and construction sectors have been important drivers of these job gains. A number of area manufacturing firms have expanded during the past 12 to 18 months and fiscal 2012 building permit values are up 31% over fiscal 2010 permit activity. Tourism has also experienced a strong season. For the first 10 months of fiscal 2012, tourist tax collections are up nearly 14% higher over the equivalent period of fiscal 2011. Housing values within the county declined by over 50% from the peak in 2006 but have generally increased over the past year, according to Case-Schiller.

SLOWING TAX BASE LOSSES PORTENDS NEAR TERM STABILIZATION

Typical of many Florida counties, Manatee County lost 31% of its tax base between fiscals 2008 and 2012, due to a combination of state-wide property tax reform and the housing meltdown. Taxable value losses have mitigated over the past two fiscal years, dropping a modest 2% in fiscal 2013, which Fitch believes is indicative of near-term stabilization. Officials project the tax base to grow about 1% next year followed by gradually accelerating growth in the 1.5% to 2.5% range over the following three years. Fitch views these projections as reasonable given the recent positive trends in both jobs and housing.

BELOW-AVERAGE LEVERAGE

Debt indices are below average with direct and total debt to full value of 0.5% and 1.6%, respectively. The county relies primarily upon debt secured by its CB&A pledge rather than general obligation bonds.

The new issue refunds the outstanding series 2002 bonds and a $21 million revenue note payable to the Florida Local Government Commission. The refunding extends the term of both the authority's revenue bonds and the note, however, amortization remains above-average with approximately 70% of principal retired within 10 years. Debt service requirements do not claim a disproportionate share of county spending; fiscal 2011 debt service requirements comprised a manageable 7.9% of general fund and debt service expenditures. The county's capital needs are manageable and tax-supported debt plans include very modest issuances.

MANAGEABLE PENSION AND OPEB LIABILITIES

The county's retirement obligations do not represent a cost pressure. The county participates in the Florida Retirement System (FRS) in which nearly all county employees are members. The county's fiscal 2011 contribution to the plan represented a manageable 8.4% of general fund spending and officials were projecting fiscal 2012 costs to be lower due to changes in state law which now require employees to contribute 3% of their salary. This law is currently being challenged in the courts; however, Fitch believes an unfavorable ruling would be manageable given the extent of the county's budget.

Retired employees also have the opportunity to participate in the county's defined benefit health care plan for active employees which includes medical coverage, prescription drug benefits, dental benefits and life insurance coverage. The county subsidizes the retirees' costs on a pay-go basis. Fiscal 2011 contributions totaled $2.9 million or just 1.3% of general fund expenditures. The county's unfunded accrued actuarial liability as of fiscal 2011 of $152 million represented just 0.5% of full value.

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, National Association of Realtors

Applicable Criteria and Related Research:

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

--'U.S. Local Government Tax-Supported Rating Criteria', dated 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

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Fitch, Inc.
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Source: Fitch Ratings