OREANDA-NEWS. Fitch Ratings has assigned an 'AA-' rating to the following Reedy Creek Improvement District, Florida (the district) bonds:

--\$52.5 million ad valorem tax refunding bonds, series 2015A.

The bonds are scheduled for sale on a negotiated basis on April 8. Proceeds will be used to refund portions of outstanding series 2005A and series 2005B bonds for debt service savings.

In addition, Fitch affirms the 'AA-' rating on the following district outstanding bonds:

--\$430.8 million ad valorem tax bonds at 'AA-'.


The Rating Outlook is Stable.

SECURITY

The ad valorem tax bonds are payable from a levy of a direct annual tax on all taxable property within the district, not to exceed 30 mills.

KEY RATING DRIVERS

HIGH TAX BASE CONCENTRATION: The Walt Disney Company (Fitch Issuer Default Rating of 'A', Stable Outlook) and its wholly owned subsidiaries (together, Disney) constitute about 90% of the district's taxable value and revenue resources. Such large scale concentration is mitigated in part by Disney World's long-standing position as one of the world's premier tourist destinations and Disney's substantial, ongoing investments in Disney World.

STRONG FINANCIAL MANAGEMENT AND OPERATIONS: Finances are sound as evidenced by substantial reserves and elevated levels of liquidity which serves to offset partially the district's exposure to the cyclical tourist sector. Although reduced recently, the taxing margin remains well below the 30-mill property tax cap, offering additional flexibility.

ESSENTIAL PURPOSE: The district was created to provide essential services to the Walt Disney World Resort including power, water and wastewater services and construction and maintenance of roads, canals and bridges.

HIGH DEBT LOAD: Debt levels are elevated as is the debt service burden on the budget. The latter is in part due to the limited purposes of the district. Future debt plans are manageable and existing debt service requirements can be easily accommodated within the tax rate cap.

RATING SENSITIVITIES

CHANGE IN DISNEY'S CREDIT QUALITY: A negative change in Disney's credit profile could result in a downgrade to the district's rating.

DISTRICT OPERATIONS: A significant deterioration in district financial operations could also lead to negative rating action. However, given the current strength of operations and the limitations to the rating based on economic and tax base concentration, Fitch views this as unlikely.

CREDIT PROFILE

Reedy Creek Improvement District was created in 1967 by a special act of the state legislature for the purpose of supporting and administering certain aspects of the development of the Walt Disney World Resort (Disney World), which opened in 1971. The district provides utility, roadway, and emergency services to all properties within its boundaries.

The enabling legislation gives the district a wide range of governmental powers generally reserved for cities and counties including the ability to issue debt, exercise eminent domain, create land use and building codes, develop and maintain its own infrastructure, and levy taxes.

WALT DISNEY CO. OWNS MAJOR PORTION OF DISTRICT LAND

The district encompasses 25,000 acres of land (about 40 square miles) of which approximately 19,000 are located in Orange County and 6,000 are within Osceola County. About two-thirds of the land within the district is owned by the Walt Disney Company or its wholly owned subsidiaries (Disney), while 29% belongs to the district and the remaining 4% is split between the state and other entities.

A five-member board of supervisors elected by landowners governs the district. By virtue of its majority ownership of district land, Disney determines the composition of the board, which allows for a close working relationship but could potentially threaten the board's independence.

TAX CAP PROVIDES WIDE TAXING MARGIN

The district is permitted to levy an ad valorem tax of up to 30 mills to pay principal and interest on any ad valorem bonds as well as fund operations. The limit provides management with abundant legal margin. The district's fiscal 2015 levy of 12.6 mills, the district's highest property tax rate yet, represents just 42% of the maximum. At current levels of spending, taxable values would have to drop by 58% in order to reach the 30 mill cap. Growth in the annual property tax levy for operations but not debt service is limited to growth in the CPI plus population increases.

In addition, the district has the ability to impose an additional 10 mills for maintenance and a 10% utility tax but has yet to do so. Property tax collections have historically been exceptional, averaging 100% per year.

HIGHLY CONCENTRATED TAX BASE

The tax base is highly concentrated, dominated by Disney and its related subsidiaries which accounted for approximately 89% of the \$8.7 billion fiscal 2015 tax base. Due to this concentration, the district's rating is correlated to Disney's.

Fitch's concern regarding the presence of Disney and the cyclical tourist sector are mitigated by Disney World's long-standing record as one of the world's top tourist destinations and the general resilience of theme park performance over the past five years. Disney continues to make substantial investments in Disney World, a large expansion of Disney Springs (Downtown Disney) and the largest expansion of Animal Kingdom with the building of Avatar land, scheduled to open in early 2017.

TAXABLE VALUES EXPERIENCED SIGNIFICANT GROWTH

Despite the high tax base concentration, district property valuations have exhibited less volatility than many Florida taxing jurisdictions which lost a sizable portion of their tax bases after fiscal 2007. The largest decline in the district's tax base during the past two decades totaled only 7% between fiscals 2009 and 2011. The tax base recovered slowly in fiscals 2012 and 2013, but has since surged. Values grew by over \$1 billion or 14% over fiscals 2014 and 2015 to \$8.3 billion as large projects such as the new Fantasyland came on line. Officials expect assessed value growth to continue over the next three years as additional projects are placed on the tax roll.

TAX RATES INCH UP RECENTLY

Property tax rates, which have been generally increasing since fiscal 2008, grew by a substantial 6.5% each in fiscals 2014 and 2015. The fiscal 2015 tax rate of 12.6 mills consists of 4.7 mills for debt service and 7.9 mills for operations. The main driver of the rate hikes is the district's growing debt service costs. However, higher maintenance costs are gradually pushing up operating millages as the district's infrastructure expands, requiring greater levels of service and upkeep. Officials expect tax rates to grow again in fiscal 2016 as the opening of a second garage elevates operating costs but should subsequently level off. Despite the millage increases, overall tax rates remain well below 50% of the 30 mill cap.

HIGH DEBT LEVELS

Debt burden is elevated at over 8% of taxable assessed value. Debt levels nearly doubled in 2013 with the issuance of \$345 million of new money bonds. The district increased the size of bond issue from an original range of \$100 million to \$250 million to take advantage of favorable interest rates. The 2013 issue extended final maturity of the district's debt to 2038, slowing principal amortization from nearly 90% to 40% within the next 10 years.

Most of the district's direct ad valorem debt was used to finance transportation-related projects. The district guarantees \$80 million of outstanding Osceola County transportation improvement refunding bonds of 2014. The guaranty is subordinate to the payment of the district's direct debt.

Proceeds of the original transportation improvement bonds were used to construct the Osceola Parkway and are primarily secured by toll revenues from the project. Since a refinancing in 2004, the district has not been required to draw upon its guaranty. To the contrary, excess toll revenues have enabled Osceola County to reimburse the district for debt service on its ad valorem tax bonds.

Debt service costs for fiscal 2015 constitute a high 36% of general spending, according to the fiscal 2015 budget, reflecting the limited purposes of district operations and heightened debt. Maximum annual debt service (MADS) of \$42.1 million occurs in fiscal 2017 and then gradually declines. New money debt plans may include about \$50 million this year and an additional \$50 million in two or three years. These bonding plans are not expected to substantially raise overall debt levels as approximately \$100 million of principal is scheduled for retirement over the next five years. An additional issuance totaling \$60 million is contemplated beyond the five year timeline.

WELL-MANAGED FINANCIAL OPERATIONS

District financial operations are well managed as indicated by strong reserves and superior levels of liquidity. Officials reported a modest fiscal 2013 general fund net operating deficit of \$400,000 maintaining general fund balance at approximately \$25 million or a hefty 43% of spending. Unrestricted fiscal 2013 general fund balance of \$18 million accounts for strong 31.2% of spending.

For fiscal 2014, the district budgeted a \$5.2 million general fund net operating deficit, although management typically budgets conservatively. Final results show a \$3.1 million operating surplus for fiscal 2014 as building permit and Osceola Parkway revenues came in higher than anticipated while actual expenses were significantly under budget. The positive results raised unrestricted general fund balance to \$20.8 million or 36% of spending. Property taxes comprise about 91% of revenues. Liquidity levels are elevated, as fiscal 2014 general fund unrestricted cash and investments represent five months of operations. The fiscal 2015 budget proposes a moderate \$3.2 million fund balance drawdown. Officials claim that actual results to date are on track with budget.

The district maintains an informal unrestricted fund balance target equal to two months of operations plus the amount of the Dec. 1 interest only bond payment in order to bridge the funding gap between the start of the fiscal year on Oct. 1 and the receipt of property taxes in December. For fiscal 2015, the district is slightly under the target but can manage a temporary shortfall by adjusting capital spending and certain other payments.

RETIREMENT BENEFITS ARE NOT A COST PRESSURE

The district provides pension benefits to its employees through the well-funded Florida Retirement System (FRS), a multiple employer cost sharing plan administered by the state. The fiscal 2014 pension contribution to FRS by the district totaled \$3.5 million or a moderate 6% of general fund spending.

Qualified district retirees hired before March 1, 2013 are afforded access to health insurance with costs fully covered by the district. While the district has been funding this other post-employment benefit (OPEB) liability on a pay-go basis, it has also been setting aside funds for future liabilities. The total set-aside at the end of fiscal 2014 was \$7 million or 12% of the unfunded liability. The actual pay-go expense for fiscal 2014 totaled approximately \$1.1 million or a low 1.9% of general fund expenditures. A similar amount was budgeted for fiscal 2015. Management intends to establish an OPEB trust fund in the near term in order to begin formal funding of its OPEB unfunded actuarial accrued liability.