NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the outstanding ratings on the following Northern Palm Beach County Improvement District, FL's (the district) water control & improvement refunding bonds:
--$4.9 million Unit of Development No. 5B water control & improvement refunding bonds, series 2005 at 'A';
--$7.6 million Consolidated Units of Development No. 5C, 5D, 11, & 45 water control & improvement refunding bonds, series 2006 at 'A';
--$3.8 million Unit of Development No. 27B water control & improvement refunding bonds, series 2012 at 'BBB'.
The Rating Outlook is Stable.
SECURITY
The bonds are separately secured by special assessments, or drainage taxes, levied upon assessable property within the respective development units. The bonds do not constitute a general obligation of the district. The bond documents provide for a debt service reserve fund (DSRF) for each issue. The DSRFs for the series 2005 and 2012 bonds are funded with cash while the DSRF for the series 2006 bonds is fulfilled with a surety.
KEY RATING DRIVERS
STABLE DEVELOPMENT: The 'A' rating on the series 2005 refunding bonds is based on favorable credit characteristics of unit of development 5B, including full build-out, diverse assessment base, strong tax collection history, and high land to lien values.
SMALL DEVELOPMENT UNIT: The 'BBB' rating for unit of development 27B (Botanica) primarily reflects its small size, only 149 acres, but also incorporates above average debt burden and concentrated assessment base.
SEVERAL OBLIGATIONS; WEAKEST LINK ANALYSIS: The 'A' rating on the series 2006 bonds incorporates the discrete obligations of the three participating units for their respective share of total debt service which calls for a weak-link analysis under Fitch's criteria. Fitch views each of the combined units as 'A' quality with the small size of participating unit 45 mitigated by the district's ability to generate significant additional drainage taxes to cover any shortfalls for debt service and its high value to lien.
STRONG COLLECTION MECHANISM: The special assessments are levied on the property tax bill and constitute a first lien on property, which is on parity with real estate taxes and superior to other liens including mortgages. A rigorous enforcement process ensures timely cash flow to pay debt service.
LIMITED TAXING MARGIN: Assessments can only be levied in aggregate up to 100% of assessed benefits of the project. However, the principal amount of bonds which can be issued may not exceed 90% of assessed benefits, providing a 10% assessment cushion to cover any delinquencies.
IMPROVING ECONOMY: The Palm Beach economy continues to recover from the past recession as evidenced by ongoing jobs growth and rapidly rising home values.
RATING SENSITIVITIES
DECLINES IN TAXABLE VALUES OR TAX COLLECTIONS: Sizable declines in taxable values within the district which raise debt and tax burdens or a steep drop in tax collection rates could pressure the ratings although Fitch considers both scenarios to be highly unlikely.
ADDITIONAL LEVERAGE: Additional bond issuance which significantly reduces unit of development 45's taxing margin will result in negative rating action on the series 2006 refunding bonds.
CREDIT PROFILE
The district is an independent special district created by the state in 1959 to provide water management and infrastructure development services to properties in northern Palm Beach County (ULTGO rated 'AAA' with a Stable Outlook by Fitch). The district encompasses approximately 128 square miles of land which include district-designated units of development.
DRAINAGE TAXES ON PARITY WITH PROPERTY TAXES
The district is authorized to levy special assessments (drainage taxes) on all taxable property within each unit of development up to 100% of the project benefits assessed for the purpose of paying principal of bonds. The district engineer determines the amount and apportionment among landowners of benefits prior to the construction of the improvement plan.
LIMIT ON BONDS PROVIDES SMALL TAXING CUSHION
The levy of drainage taxes cannot exceed the benefits assessed, both on an aggregate and individual landowner basis. Furthermore, state law restricts the issuance of bonds to 90% of benefits, providing the district with a 10% taxing cushion to cover any shortfalls in receipts. The district can levy additional assessments without limitation to meet bond interest requirements. In addition, the district can levy assessments assuming all taxpayers take advantage of the 4% early payment district, providing some additional margin.
RIGOROUS TAX COLLECTION AND ENFORCEMENT SYSTEM
The drainage taxes are levied on each owner's property tax bill and carry a parity lien with property taxes on the owner's property. The taxpayer is required to pay all taxes shown in the tax notice without preference, including all amounts attributable to drainage taxes.
Bond security also benefits from Florida's efficient tax collection and enforcement system. Property taxes including assessments are due on November 1st of each year and become delinquent the following April 1st. After 60 days, if still delinquent, the county has the ability to sell tax certificates requiring the purchaser to pay all delinquent taxes for that year including the assessments plus interest. The tax certificate process ensures that sufficient assessment revenues will be available to pay debt service. Historically tax collection rates within the district have been excellent, ranging from 98% to over 100%.
SMALL AREA WITH SOME TAX BASE CONCENTRATION
Botanica is a small primarily residential development consisting of 149 acres in the Town of Jupiter. The development includes a modest commercial center anchored by a Publix supermarket. Botanica is mostly developed with only about 30 lots remaining without homes of a total of 540 lots. There is some concentration in the assessment base as New Urban Jupiter Partners II LLC, the developer, represents about 11% of total assessments. Centex Homes, a wholly owned subsidiary of the Pulte Group (issuer default rating of 'BB' and Stable Outlook) accounts for 4.5% of assessments and Sea Plum Florida, a commercial center, is responsible for 3.2% of the assessment base. However, the 19% combined share of the top three assesses has been steadily declining and Fitch expects further diversification as empty lots are sold to builders and ultimately to homeowners.
Botanica's land to lien ratio of nearly 15 including overlapping debt is relatively strong, although not as high as other developments we rate within the district. Taxable assessed value (TAV) for fiscal 2013 was 27% below peak TAV in fiscal 2008. However, fiscal 2013 TAV represented the first increase in five years. Fitch believes that it is likely that TAV within Botanica will continue given the rapid rise in Jupiter home prices, which are up by over 11% this year, according to Zillow.com. Debt levels are slightly above average and principal amortization is slow with only 40% maturing within the next ten years. No new debt is planned.
DEVELOPMENT UNITS
The units of development securing the series 2005 and 2006 bonds are generally more sizable than Botanica. Unit 5B, developed as a mixed use adult community in West Palm Beach, contains 580 acres and over 1,200 housing units. Units of development 5C and 5D are also planned developments located in West Palm Beach. Unit 5C, named Riverwalk, covers 560 acres and includes over 1,300 units. Unit 5D is a mixed use community called Andros Isles spread over 605 acres. The smallest development is unit 45 located in Jupiter. Known as Paseos, unit 45 is entirely residential with only 325 homes covering only 175 acres.
The series 2006 refunding bonds combined discrete bond refundings for units of development 5C, 5D, 11 and 45 within one bond issue. Each unit is subject to drainage taxes in an amount required to pay a portion of debt service based on that unit's respective share of the refunding issue. In addition, participating units are not subject to levy drainage taxes for debt service after the date in which the refunded bonds for that unit would have fully matured. The obligation of unit of development 11 for debt service ceased after August 2010. The series 2006 bonds are currently payable from drainage taxes from units of development 5C, 5D and 45.
Fitch rates bonds secured by several obligations of multiple participants based upon the credit quality of the weakest participant. With the series 2006 bonds, Fitch considers all of the three participants to be 'A' rated entities. The units are fully built out with elevated land to lien values. The lowest land to lien value of the group was 19.5 for unit of development 5D while the remainder exhibited ratios over 20. Debt levels are generally moderate and principal payout for the series 2005 and 2006 bonds are aggressive with 10 year principal payout rates of 100% and 67%, respectively. There are no assessment concentration issues with any of the said units of development and taxes remain affordable given the county's high wealth indices.
At 175 acres, unit of development 45 is smaller than most other 'A'-rated assessment districts. However, because unit 45 is lightly leveraged, the district retains significant cushion in its ability to levy additional drainage taxes up to 75% of the unit's share of outstanding series 2006 par to cover any potential shortfalls in assessment collections. The magnitude of unit 45's taxing margin is the key offset to Fitch's concerns regarding the unit's below-average dimensions and greater susceptibility to disruptive events.
LOCAL ECONOMY CONTINUES TO EXPAND
The expanding Palm Beach county economy encompasses a significant education and healthcare network along with its traditional underpinnings of tourism, agriculture, and related service industries. A growing biotechnology sector has emerged within the district. The Scripps Institute opened its main campus in Jupiter in 2009 and expects to employ at least 545 by 2014 and the Max Planck Florida Institute celebrated the opening of its campus adjacent to Florida Atlantic University in late 2012. In addition, a number of smaller biotech companies have either expanded or commenced operations in the area since the arrival of these two high-profile organizations.
The county's economy experienced significant employment growth in 2011 and 2012, growing by 2.4% and 3.5%, respectively and continues into 2013. April 2013 employment showed a 2.1% increase over April 2012 levels as the unemployment rate fell from 8.4% to 6.8%, consistent with the state and national averages. Housing continues to make a brisk recovery. Housing prices in West Palm Beach and Jupiter are up 11.6% and 14.1%, respectively over prior year valuations, according to Zillow.com.
Fitch Ratings has withdrawn its ratings for the following Northern Palm Beach County Improvement District (FL) bond due to prerefunding activity:
-- (Abacoa Project - Unit of Development 9A) water control & improvement refunding bonds series 2003 (all maturities).
The updated rating history for the above maturities is now reflected on Fitch's web site 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 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=793301
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