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Fitch Affirms Indian River County, FL's Spring Training Revs at 'AA+'; Outlook Negative

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following ratings on Indian River County, Florida (the county):

--$11.1 million spring training facility revenue bonds, series 2001 at 'AA+';

--$32.4 million limited general obligation bonds, series 2006 at 'A-'.

In addition, Fitch assigns an implied unlimited tax general obligation (ULTGO) rating of 'AAA'.

The Rating Outlook is Stable for the limited GO bonds and the implied ULTGO and Negative for the spring training facility revenue bonds.

SECURITY

The spring training facility revenue bonds are limited obligations of the county, secured by a first lien on certain statutorily defined payments received from the State of Florida, and proceeds from the fourth cent tourist development tax (TDT) levied by the county and 86% of the local government half-cent sales tax distributed to the county by the state.

The lien on the TDT and half-cent sales tax is automatically released as of April 1, 2021 (the final maturity date of the bonds is April 1, 2031). The bonds are additionally secured by a cash-funded reserve equal to maximum annual debt service (MADS).

The LTGO bonds are limited obligations of the county, secured by the levy of ad valorem taxes not to exceed 0.5 mills on all taxable property in the county. The bonds are not secured by a reserve fund.

KEY RATING DRIVERS

STRONG SPRING TRAINING COVERAGE: Coverage of MADS from fiscal 2011 pledged receipts is strong at over 5.5x and additional leveraging is not expected. However, following April 1, 2021 bondholders will be secured only by sum-sufficient payments made by the State of Florida from its general revenue fund. Due to this joint payment stream, the rating is capped at the lower of the county's ULTGO rating and the state's appropriation rating, currently reflected in the 'AA+', Negative Outlook.

GO BONDS REDEEMED: Indian River County's unlimited tax GO bonds, series 2001, last affirmed at 'AAA' with a Stable Outlook by Fitch on October 21, 2011, were redeemed in full in May 2012 from cash on hand. There are no other GO bonds outstanding. Fitch assigns an implied ULTGO rating of 'AAA' based on the county's exceptional credit profile, as outlined below.

CONSISTENT SURPLUS RESULTS: The county's fiscal management team has guided the general fund to an operating surplus (after transfers) in each fiscal year from 2001 through 2011. Operating revenues are conservatively forecasted, and officials have made significant spending reductions that offset recent year's revenue decline. Fiscal 2012 is expected to end with a draw on fund balance related to the redemption of GO bonds as noted above.

EXCEPTIONAL FINANCIAL RESOURCES: Despite the use of fund balance to pay down debt in fiscal 2012 the sum of year-end unrestricted general fund reserves is expected to approximate 60% of spending. The county's fiscal policy prudently prohibits the use of reserves to fund non-recurring spending which should help preserve a high level of financial cushion going forward.

FAVORABLE DEBT METRICS: Fitch expects the county's overall debt burden will remain very low and the cost of servicing debt affordable. Outstanding debt is repaid in an aggressive manner, and additional borrowing is not presently contemplated.

NOTABLE ECONOMIC PRESSURES: While the presence of a wealthier retiree population lends some stability to the local economic base, pressures remain as property values remain in decline, employment opportunities are somewhat narrow and concentrated in lower wage jobs, and the county's rate of joblessness is persistently above that of the state.

LIMITED GOs - LIMITED COVERAGE: The 'A-' rating on the county's limited GO bonds reflects the limited 0.5 mill ad valorem pledge that, if fully levied, would generate about 1.3x coverage of MADS. Fiscal 2013 marked the fifth consecutive year of tax base decline, although the rate of descent continues to moderate.

WHAT COULD TRIGGER A RATING ACTION

--On the spring training facility revenue bonds: A material change in the collection of half-cent sales tax and TDT, or a change in the implied ULTGO rating of the county or GO rating of the State of Florida.

--On the LTGO bonds: The current rating recognizes risk to continued moderate tax base and coverage decline through fiscal 2014. Should the rate of tax base decline accelerate or fail to stabilize beyond fiscal 2014, negative rating action may occur.

CREDIT PROFILE

STRONG COVERAGE ON SPRING TRAINING BONDS

Fiscal 2011 pledged revenues total $6.9 million including $6.1 million from the pledged portion (86%) of the county's local government half-cent sales tax, $360,822 in TDT revenue and $500,004 from the state general revenue fund. Coverage of MADS ($1.23 million) is a strong 5.6x.

The half-cent sales tax and TDT revenue streams continue to perform relatively well. Annual sales tax and TDT receipts improved 2.1% and 8.3%, respectively, in fiscal 2011 from the prior year. Through the first 10 months of fiscal 2012 collections are up 5.1% for the half-cent sales tax and 12.4% for the TDT. Half-cent sales tax and TDT revenue could be reduced by almost 90% from projected fiscal 2012 receipts before coverage would be less than 1.0x (this analysis assumes collection of the $500,004 state payment).

Leveraging risk is considered low despite the strong coverage as surplus revenue from the half-cent sales tax is utilized to fund general operations of the county. The county has stated it has no plans to issue additional debt secured by either of these special taxes.

The state payment represents a fixed sum payable to the county pursuant to Florida Statutes 288.1162 and the county's certification by the state as a retained spring training franchise. Following the release of the half-cent sales tax and TDT pledge bondholders will be secured only by the state payments; MADS will decline to $499,750 resulting in 1.0x coverage.

EXCEPTIONAL FINANCIAL RESOURCES

In Fitch's view the county's financial management and resources serve as the linchpin of its superlative implied ULTGO rating. The general fund concluded fiscal 2011 with an operating surplus (after transfers) of $294,803 or a modest 0.3% of spending. The general fund unrestricted fund balance (the sum of the unassigned, committed, and assigned fund balance under GASB 54) totaled $56.4 million or a robust 63.5% of spending. The balance sheet is flush with cash totaling $57.4 million - more than 14x total liabilities and over seven months of spending.

The county has well defined and prudent fund balance policies. A total of $33.7 million or 37.9% of spending is unassigned; the county aims to maintain an unassigned balance of at least 20% or 2.5 months of spending for liquidity purposes. By policy the county shall maintain an additional 5% each for budget stabilization and emergencies.

Management expects to end fiscal 2012 with a $3 million operating deficit as the county opted to redeem from cash on hand the remaining $3.62 million principal outstanding on its GO bonds, series 2001. A total of $1.8 million of fund balance is included to balance the fiscal 2013 budget; this represents an increase of less $148,000 from the prior year. The county routinely appropriates reserves within its budget, but prior to fiscal 2012 it had last recorded an operating deficit in the general fund in fiscal 1999.

ECONOMIC PRESSURES PERSIST

Indian River County is located on the Atlantic coastline, approximately 135 miles north of Miami, and includes the cities of Vero Beach and Sebastian. The economy of Indian River County is one historically based in agricultural production (particularly citrus) and tourism. Ample developable waterfront land and a relative lack of congestion serve to attract a significant wealthy retiree population, which is evident in the per capita income levels approximately 20% higher than the state, high market value per capita, and above-average median age.

Strong population growth fed a retail and service-based economy including a considerable construction and real estate component, which has proven extremely vulnerable to the effects of the national recession. The county's July 2012 unemployment rate of 12.2% remains well above state and national norms, but improved from 14% a year earlier due to solid gains in the hospitality, retail, and education and healthcare sectors.

DEBT TO REMAIN LOW

At 1% of market value and $1,385 per capita, the county's overall debt burden (including overlapping obligations of the county school board) is considered very low by Fitch. Annual debt service consumes just 6% of the budget; an affordable burden made more noteworthy by the fact that more than 90% of outstanding debt is repaid within 10 years.

Capital needs are manageable and largely related to transportation and utility system improvements financed from gas and sales tax revenues, impact fees, and user fees. No new money issuance is anticipated over the next five years.

The county debt profile does not have exposure to variable rate debt, short-term debt, or derivatives.

The county's liability with respect to employee pensions (the county participates in FRS, a state-wide multiple employer plan) and OPEB approximate $12.6 million in fiscal 2011 (government wide) or 14% of general fund spending. The county provides an explicit subsidy for OPEB exceeding the requirement of state law, and in 2008 established a trust account with a reported fair value of $8.5 million in fiscal 2011. The county essentially funds the full actuarial required contribution to OPEB.

NARROW COVERAGE ON LIMITED GO

In fiscal 2013 the county will levy 0.3799 mills of the maximum pledged 0.5 mills to pay debt service on its limited GO bonds. The maximum levy of 0.5 mills would generate approximately 1.3x coverage of MADS based on fiscal 2013 taxable assessed value (TAV) of $12.7 billion and a 95% collection rate (actual current collections continue to exceed 96%). Fitch calculates current TAV could decline by 23.3% before the maximum pledged millage rate would fail to cover MADS by at least 1.0x.

The county's TAV fell for a fifth consecutive year in fiscal 2013, registering a 3.6% loss that follows reductions of 6.6% and 10.5% in fiscal years 2012 and 2011, respectively. The county's fiscal 2013 TAV is down 31.5% from the peak value of $18.6 billion in fiscal 2008.

The county has stated its commitment to make available sufficient funds to cover debt service if the legally pledged revenue falls short. The county's 'AAA' implied ULTGO rating is indicative of a strong willingness and capacity to meet its financial obligations, however, Fitch generally gives little weight to such a commitment if it is purely verbal, as it may not reflect consensus among government officials and is readily subject to change.

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, and the National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2011);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2011).

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 Ratings
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Source: Fitch Ratings