Fitch Affirms Broward County, FL Professional Sports Facilities Tax Revs at 'AA'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed the 'AA' rating on the following Broward County, Florida (the county) bonds:
--$88.6 million professional sports facilities tax and revenue refunding bonds series 2006A (Broward County civic arena project);
--$38.3 million professional sports facilities tax and revenue refunding bonds, taxable series 2006B (Broward County civic arena project).
The Rating Outlook is Stable.
The professional sports facilities tax and revenue bonds are secured by a 2% tourist development tax (TDT), a payment of $2 million annually from state sales tax revenue (the sales tax rebate), and certain operating revenues (including rental payments) related to the BB&T Center, home of the National Hockey League (NHL) team, the Florida Panthers.
In addition, the county covenants to budget and appropriate, by amendment if necessary, legally available non-ad valorem revenues to satisfy any deficiency in the reserve account. The reserve account requirement is 50% of maximum annual debt service (MADS).
KEY RATING DRIVERS
COMBINED SOURCES CREDIT STRENGTH: The exceptional 'AAA' general obligation (GO) ratings of both the State of Florida and Broward County, underscore the strength of the pledge of the state's sales tax rebate and the county's reserve account deficiency covenant. Each partially mitigates risk to the volatile TDT revenue stream.
SOLID COVERAGE: The sum of the pledged tax revenues and the county's deficiency covenant offer a sizable and diverse base of resources available to ensure timely bondholder repayment.
NO ADDITIONAL BONDS: Additional new money bonds are prohibited, and the bonds amortize relatively quickly.
STRONG TOURISM APPEAL: Broward County's reputation as a leading tourism destination featuring varied leisure activities and attractions, an abundance of retail and restaurants, extensive beach line, and comprehensive transportation infrastructure, supports Fitch's expectation for TDT growth over the long term.
FINANCIAL STRENGTH: The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices.
DECLINING TDT REVENUES: A notable weakening in TDT collections could also pose credit concern. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.
Broward County is situated on Florida's Atlantic coast between Miami-Dade and Palm Beach counties. The county is home to 31 incorporated municipalities including Fort Lauderdale, Coral Springs, and Hollywood, and ranks as Florida's second largest county with a 2014 population of 1.9 million.
ADEQUATE COVERAGE FROM TDT AND SALES TAX REVENUE ALONE
Historical maximum annual debt service (MADS) coverage from the TDT, a tax on charges of hotels, motels and other short term accommodations, pledged to the payment for the professional sports facilities tax and revenue bonds has strengthened as the economic recovery is boosting tourism related revenues. Tourist visitors in 2015 totaled a record 15.4 million, up from 14.3 million in 2014 and 13 million in 2013. Pledged TDT revenues increased a robust 10.1% and 11.6% in 2015 and 2014, respectively. Six month fiscal year-to-date TDT revenues are up a healthy 7.2% over same period collections in fiscal 2016.
Fiscal 2015 pledged revenues provided 2.1x debt service coverage; however, net of the rent payments from the facility operator the coverage drops to a still-healthy 1.8x. Operator revenues total approximately $4 million (or the equivalent of 0.3x MADS) but in fiscal 2010 the operator negotiated a deferral of the payment.
Recently, an amended and restated operating agreement for the arena was signed between the county, the Panthers and affiliates in which the county will provide the team with additional funding for operating and capital needs in exchange for limited revenue sharing. The team's rent payment obligations of $4 million annually towards debt service remain intact.
OTHER PLEDGED REVENUE STREAMS COULD OFFSET SIGNIFICANT TDT STRESS
The sales tax rebate ($2 million) and the maximum amount of non-ad valorem revenue that would be advanced pursuant to the reserve account deficiency covenant ($7 million) represent 0.6x coverage of MADS. The total general fund non-ad valorem revenue after deducting for transfers and the cost of essential governmental operations not funded from ad valorem revenue, is significant at approximately $267 million according to unaudited fiscal 2015 results. The availability of these sources minimizes bondholders' exposure to volatility in the TDT revenue stream. Fitch calculates that fiscal 2015 TDT revenue could decline by 49%, before the total sources available for bond repayment (excluding facility rent) would equal 1.0x MADS.
DEFICIENCY COVENANT MECHANICS ENSURE TIMELY PAYMENT
Pursuant to the county's deficiency covenant and master trust indenture, the county shall be obligated to advance funds to the trustee sufficient to restore any deficiency in the reserve account by the 5th day immediately preceding the date on which debt service is due.
A reserve account deficiency is deemed to exist in the event the reserve fund surety bond fails to pay, which will be determined no later than 1 business day prior to debt service. The county has sufficiently demonstrated to Fitch its ability to advance non-ad valorem funds pursuant to the deficiency covenant on such short notice for Fitch to assume this source of repayment would be timely.
However, Fitch notes that the reserve requirement is 50% of MADS so in the highly unlikely event of a precipitous drop in pledged revenues, the county could conceivably meet its reserve deficiency obligations without there being sufficient funds available in total to fully cover debt service.
NO ADDITIONAL NEW MONEY DEBT PERMITTED
No additional bonds are permitted under the indenture, other than for refunding purposes. Original bond proceeds were used to construct the Bank Atlantic Center, a multi-purpose sports and entertainment arena home to the Florida Panthers, a professional National Hockey League franchise. The facility was completed in 1998.