Fitch Affirms Northern Palm Beach County Improvement Dist, FL's Bonds at 'BBB'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms the 'BBB' rating on the following Northern Palm Beach County Improvement District, FL's (the district) water control & improvement refunding bonds;

--$3.49 million Unit of Development No. 27B (unit 27B) water control & improvement revenue refunding bonds, series 2012.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by special assessments, or drainage taxes, levied upon assessable property within unit of development 27B. The bonds do not constitute a general obligation of the district. A cash-funded debt service reserve fund (DSRF) provides additional security.

KEY RATING DRIVERS

SMALL DEVELOPMENT UNIT: The 'BBB' rating for unit 27B (Botanica) primarily reflects its small size, only 149 acres, but also incorporates a somewhat concentrated assessment base.

HIGH LEVEL OF DEVELOPMENT: Unit 27B is well-developed with only 11% of assessments attributable to vacant parcels.

SUPERIOR VALUE-TO-LIEN (VTL) RATIO: Unit 27B's favorable VTL ratio of 32x (21x including overlapping debt) offers property owners strong incentives to continue making assessment tax payments.

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 that can be issued may not exceed 90% of assessed benefits, providing a 10% assessment cushion to cover any delinquencies.

SOUND 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 the burden of debt and drainage taxes or a steep drop in tax collection rates could pressure the ratings, although Fitch considers both scenarios to be highly unlikely.

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 (unlimited tax general obligation bonds rated 'AAA' with a Stable Outlook). The district encompasses approximately 128 square miles of land and includes numerous district-designated units of development.

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.

SMALL BUT HIGHLY DEVELOPED AREA

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. Housing ranges from very large estate homes to much smaller townhouses and condominiums. Botanica is almost fully developed. In fiscal 2014 undeveloped parcels accounted for approximately 11% of assessments.

The assessment base remains concentrated although the share of the top three assessment payers has been steadily declining from 35% in 2007 to 14% currently. The three largest taxpayers are developers: New Urban Jupiter Partners II LLC, the developer and largest landowner, represents 6.8% of total assessments. Centex Homes, a wholly owned subsidiary of the Pulte Group (Issuer Default Rating of 'BB' with a Stable Outlook) accounts for 4.1% of assessments with five condo sites, and Sea Plum Florida, a commercial center, is responsible for 3.4% of the assessments.

STRONG TAX PROVISIONS ADD TO SECURITY

Elevated concentration levels are partially mitigated by strong collection mechanisms and available but limited taxing margin. 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. In addition to its superior lien status, drainage tax collections benefit from Florida's efficient tax collection and enforcement system in which 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.

While drainage assessments levied cannot exceed the project benefits, state statute limits bonds to 90% of total benefits, providing a 10% cushion for additional drainage taxes to cover any shortfalls. Assessments for interest are not subject to any limits. In addition, the district can levy assessments assuming all taxpayers take advantage of the 4% early payment discount, providing some additional margin.

The district levies drainage taxes as well as maintenance assessments within unit 27B. The assessment rates are based on land use (single-family residential, townhouse, condominium or commercial) and typically constitute only a small portion of the property tax bill. Tax collection rates have historically averaged 100% or better.

SUPERIOR VTL RATIO ADDS TO CREDIT SECURITY

Fitch regards as favorable Botanica's elevated VTL of 32x (21x including overlapping debt), as it provides strong incentive to pay property taxes along with drainage taxes. Taxable assessed values (TAV) for fiscal 2015 increased by a solid 11.5%, the third consecutive year of growth following four years of decline. Assessment growth included expansion from the construction of a small number of additional condo units. The higher trend of assessed values coincides with the continued recovery of the housing market within the county. Housing valuations as of March 2015 within unit 27B's zip code are up 9.7% from the prior year, according to Zillow.com.

ABOVE-AVERAGE DEBT LEVELS EXPECTED TO DROP

Debt levels are above average and principal amortization is about average with 46% maturing within the next 10 years. Elevated debt levels are expected to decline as all of unit 27B's capital needs have been met for at least the next five years and no new debt is planned.

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 with the Scripps Institute and the Max Planck Florida Institute, which are both located within the district. 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 four years of significant employment growth from 2011 through 2014. December 2014 employment was 4.8%, below state and national rates of 5.4% and 5.6%, respectively. The county's low unemployment was fueled by strong employment growth. Per capita income levels are well above the state and national medians.

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 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=984612

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.

Fitch Ratings
Primary Analyst
Patricia McGuigan
Director
+1-212-908-1675
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Secondary Analyst
Larry Levitz
Director
+1-212-908-9174
Committee Chairperson
Karen Ribble
Senior Director
+1-415-732-5611
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
[email protected]

Source: Fitch Ratings

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