OREANDA-NEWS. Fitch Ratings has assigned an 'A' rating to the following Village Community Development District No. 7 (the district or CDD No. 7), FL special assessment revenue bonds:

--\$62.6 million special assessment revenue refunding bonds series 2015.

The bonds are scheduled for negotiated sale on March 31st. Proceeds will be used to refund outstanding special assessment revenue bonds, series 2006.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from special assessments levied upon property owners within CDD 6. Special assessments have an equal lien on property as property taxes. Revenues from owners who have prepaid their entire assessments in full are not included as pledged security but must be used to prepay debt. A cash-funded reserve established in the amount of \$250,000 provides modest additional security.

KEY RATING DRIVERS

POPULAR DEVELOPMENT FOR RETIREES: CDD No. 7 is part of The Villages, a large and very successful self-contained retirement community in central Florida with numerous amenities and entertainment venues.

FULLY DEVELOPED RESIDENTIAL TAX BASE: The bonds are secured by special assessments levied upon land which is fully developed, both horizontally and vertically. The district is 100% residential with all 4,765 homes sold to end-users.

SPECIAL ASSESSMENTS ON PARITY WITH PROPERTY TAXES: Special assessments are levied on the property tax bill and carry the same lien on land as property taxes, ahead of all other liens including mortgage liens. The tax certificate process in Florida helps ensure that cash flow for debt service is maintained in case of tax delinquencies.

SOLID VALUE TO LIEN RATIO: The value of the land to direct and overlapping debt for the district is elevated at over 10x, providing a strong economic basis for a robust tax certificate market.

SMALL AREA: The district at a little over 1 1/2 square miles is larger than many CDDs but still smaller than most municipalities.

LIMITED TAXING FLEXIBILITY: The special assessment provides a narrow coverage margin of 10%, including an increase in the levy of up to 1% above the bond interest rate as allowed by law. The district plans to levy at .5% above the bond interest rate. At the maximum levy, this taxing margin could cover the delinquencies of nearly 380 taxpayers at the average debt service assessment rate.

RATING SENSITIVITIES

INCREASED DELINQUENCIES: A significant increase in delinquent tax payments could signal financial distress and move the rating downward.

CREDIT PROFILE

HIGHLY SUCCESSFUL, RAPIDLY GROWING RETIREMENT DEVELOPMENT

The Villages is a retirement community encompassing over 21,000 acres located primarily in Sumter County (Fitch implied GO rating of 'AA-') in central Florida. Portions of the development spill over into Marion and Lake (Fitch 'AA-'implied GO ratings) counties. Begun in the 1960s, the development has experienced extraordinary growth and currently contains over 53,000 homes. At build-out, The Villages is expected to have 112,000 residents and more than 58,000 homes.

The developer of The Villages is The Village of Lake-Sumter, Inc., a family-owned business established for the single purpose of developing the community. While control of most of the residential areas has devolved to residents, the developer still owns and manages most of the commercial properties within the development.

CDD ROLE AND AUTHORITY

CDD No. 7 was established in 2004 and currently encompasses 976 acres in Sumter County along the border with Lake County. The district is one of 15 districts within The Villages created to finance and maintain infrastructure within its boundaries. Among other powers, community development districts are authorized to levy and collect special assessments to service bonds as well as maintenance assessments to fund limited district operations.
The district is governed by a five member board of supervisors of district residents elected to four year staggered terms. The board employs a district manager to operate and maintain district assets. Initially the only landowner in the district, the developer currently has only a minimal voice in district affairs.

Fitch believes the district's independent governance structure insulates it from a recent IRS finding that the Village Center Community Development District (VCCDD) is not a governmental entity for issuing bonds. The finding was based on the election of a controlling portion of the VCCDD governing board by a single property owner. CDD No. 7 is an independent municipal entity with a representative board elected by residents. A taxable refunding of the VCCDD recreation bonds last year is expected to limit any potential future action against VCCDD by the IRS.

CDD 7 FULLY DEVELOPED

The district is entirely residential and fully developed with both infrastructure and homes. All homes have been sold to end-users. Infrastructure development was financed by special assessment bonds issued in 2006, which are being refunded by the current bonds. Special assessments levied to pay the series 2006 special assessment bonds are now pledged to the repayment for this issue.

The district consists of 976 acres and includes 3,515 standard homes and 1,250 villas--4,765 units in total. In addition, there are three recreational tracts owned by the developer.

SOUND TAX COLLECTIONS, SOLID LAND TO LIEN RATIO

Property tax and assessment collections for the district have been strong, averaging close to 100% net of the allowance for early payment discount. Tax certificate sales have been minimal and declining over time. In 2014, tax certificates were sold totalling \$7,741 or 0.1% of the debt service levy of approximately \$5.3 million. The district levies assessments assuming that all property owners will take advantage of the state's 4% early payment discount. Historically, early payment discounts have resulted in a 3.7% reduction in annual gross assessments collected.
The district has also experienced significant prepayments with 826 units of a total of 4,768 (17%) having prepaid their entire assessments in full as of January 31, 2015. Prepayments must be used to redeem bonds. In fiscal 2013, prepayments totalled \$1.7 million.

Fiscal 2014 assessed values for the district total \$895 million. Assessed values for properties that have not prepaid their assessments are estimated to be \$752 million. A land to lien ratio of over 10x, including direct debt of the district and overlapping tax-supported debt of the county and school district provides strong economic incentives for the continued payment of special assessments. Given that development is complete, the district board has no plans for additional debt.

EXCESS LEVY WILL PROVIDE ADDITIONAL DEBT SERVICE COVERAGE

Special assessments are limited taxes which are generally sized in aggregate to provide narrow coverage of annual debt service. However, Florida statutes allow districts to increase the special assessment levy up to 1% above the interest rate on the bonds. The district will utilize half of the allowable increase by levying at 0.5% above the bond interest rate.

The district's projected debt service assessments include the supplemental levy and, net of 4% prepayment discounts and 2% administrative charges, provides thin 1.05x coverage of debt service. With an average annual debt service assessment per unit of about \$1,215, the estimated excess revenues would cover the loss of special assessments from 170 property owners.

Bond provisions do not mandate that the district levy special assessments above the amount required for debt service. However, district officials have used excess assessment revenues to fund capital costs, providing an incentive to maintain the levy at the higher level. Furthermore, if necessary, the district could increase the special assessment levy to the full 1% above bond interest, generating modest additional revenue. Fitch considers this structure to be a positive credit feature relative to other CDD financings.

MINIMALLY SIZED DEBT SERVICE RESERVE FUND

The excess coverage of approximately 5% of debt service partially mitigates the minimal debt service reserve fund (DSRF) of \$250,000. The DSRF size represents about 5.8% of a typical DSRF, affording modest protection against a significant interruption in collections. Combined with the built in excess coverage from the maximum special assessment levy, bond repayment could absorb a one-time loss of special assessments of nearly 15% and still cover debt service.

AREA ECONOMY BOLSTERED BY THE VILLAGES

The presence of The Villages has been the catalyst for economic expansion in Sumter County and surrounding areas. Prior to this development, the economy was based on agriculture and corrections. At present, Village residents comprise more than half of the county's population and were primarily responsible the county's 5.8% average annual population growth between 2000 and 2010. According to the U.S. census, over 50% of residents are over 65 years old compared to the state average of 18.7%. The Villages and The Villages Regional Medical Center are the county's third and sixth largest employers, respectively.

Sumter County's economy continues to expand briskly. Employment growth was up by 6.4% in 2013 and an additional 6.2% in 2014. As a consequence of employment growth, county unemployment has declined from 7.6% in 2012 to 4.7% as of December 2014, well below the state and national averages. Income levels within the county are slightly above the state averages but below the national norms. However, income growth in the county since 2008 has significantly outpaced state and national income trends--most likely due to an influx of residents into The Villages during this period. Villages' data indicates that almost half of new homebuyers report income in excess of \$100,000.