OREANDA-NEWS. June 10, 2015. Fitch Ratings has affirms the outstanding ratings on the following Northern Palm Beach County Improvement District, FL's (the district) water control & improvement refunding bonds (the bonds);

--\\$6.1 million Consolidated Units of Development No. 5C, 5D, 11, & 45 water control & improvement refunding bonds, series 2006 at 'A'.

The Rating Outlook is Stable.

SECURITY
The bonds are payable from special assessments, or drainage taxes in amounts sufficient to pay debt service and any debt service reserve fund (DSRF) replenishments, levied upon assessable property within the respective development units. The district can only issue up to 90% of the determined benefits of the project financed by the bonds. The levy of the portion of drainage taxes related to bond principal is capped at 100% of the determined benefits. The bonds do not constitute a general obligation of the district. The bond documents provide for a DSRF which is fulfilled with a surety.

KEY RATING DRIVERS

SEVERAL OBLIGATIONS; WEAKEST LINK ANALYSIS: The 'A' rating on the 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. The small size of participating unit 45 is mitigated by the district's ability to generate significant additional drainage taxes to cover any shortfalls for debt service and its diverse assessment base.

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 experience a strong recovery from the past recession as evidenced by ongoing jobs and tax base 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). 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 for the payment of principal on the bonds cannot exceed the benefits assessed, both on an aggregate and individual landowner basis. The district can levy additional assessments without limitation to meet bond interest requirements. 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. 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 1 of each year and become delinquent the following April 1. 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%.

DEVELOPMENT UNITS
Units of development 5C and 5D are 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 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 levies drainage taxes in an amount required to pay its allocated portion of debt service. In addition, participating units are not subject to drainage tax levies 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 separate 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 value to lien ratios. The lowest value to lien ratio of the group was 27.3 for unit of development 45 while the remainder exhibited ratios over 80. Even when taking into account overlapping debt, value to lien ratios remain robust ranging from 17.0 to 32.9.

Debt levels are generally moderate and payout for the 2006 bonds is above average with 10 year principal payout rate of 68%. Concentration in the assessment base in units 5C and 5D has increased in recent years due to certain firms acquiring homes for rental purposes. Despite the increase, concentration remains moderate with the top ten assessment payers estimated at 5% and 8% in units 5C and 5D, respectively. Unit 45's assessment base is diverse with the top ten payers representing an estimated 2% of total debt service assessments. Taxes remain affordable given the county's high wealth indices.

Unit of development 45 at 175 acres is smaller than most other 'A'-rated assessment districts. However, because unit 45 is lightly leveraged as the district has only issued bonds up to 61% of benefits assessed. This affords the district the ability to levy additional drainage taxes up to 63% of the unit's share of outstanding series 2006 par to cover any potential shortfalls in assessment collections. The magnitude of the unit 45's taxing margin and diverse assessment base mitigate Fitch's concerns regarding the unit's below-average dimensions and greater susceptibility to disruptive events.

LIMITED FINANCIAL OPERATIONS
District finances are limited and focused primarily on debt service, capital and maintenance needs of the individual units of development. General fund operations constitute only about 11% to 12% of total district operations and are mostly funded through transfers from other units of development for administrative and other services. Fiscal 2014 unrestricted general fund balance represented a healthy 20.3% of spending. The district also maintains substantial cash reserves relative to operations in each unit's maintenance fund

LOCAL ECONOMY CONTINUES TO EXPAND
The county's economy is supported by its traditional underpinnings of agriculture, tourism, government, healthcare, and aerospace supplemented by growing bioscience and higher education sectors. Leading employers include the Palm Beach County School Board, the county government, Tenet Healthcare Corporation, and Florida Power and Light. Florida Atlantic University (FAU) enrolls over 20,000 students on campuses within the county.

The formation of a bioscience cluster in the northern part of the county is based on the presence of Scripps Research Institute, a biomedical research firm, and Max Planck Florida Institute, which partners with FAU. Sancilio and Company, a pharmaceutical developer and manufacturer, recently announced an expansion of plant operations in Riviera Beach.

County employment has consistently increased since 2009 averaging 3.3% annually and now exceeds pre-recession peaks. March 2015 jobs were up a modest 0.3% year over year, dropping the unemployment rate down to 5.0%, below the state and national unemployment rates. Following years of decline, taxable values grew by 4% and 7% in fiscals 2014 and 2015

Building permit activity has been very strong since fiscal 2012 while tourism continues to expand with annual gains of tourist development tax collections up of 6% and 11% in fiscals 2013 and 2014, respectively.

Fitch has withdrawn its ratings for the following Northern Palm Beach County Improvement District (FL) bond due to prerefunding activity:

--(Unit of Development 5B) water control & improvement refunding bonds series 2005 (all maturities).

The updated rating history for the above maturities is now reflected on Fitch's web site at 'www.fitchratings.com'.