OREANDA-NEWS. Fitch Ratings has affirmed the 'A-' rating on the following tax increment revenue bonds issued by the Orlando community redevelopment agency, Florida:

--$14,965,000 tax increment revenue refunding bonds (Conroy Road district), series 2012.

The Rating Outlook is Stable.

SECURITY
Pledged revenues consist of tax increment revenues generated within the redevelopment area, appropriated by the taxing authorities, the city of Orlando and Orange County, and received by the community redevelopment agency (CRA) for deposit in the revenue account. The bonds are also secured by a cash-funded debt service reserve account (DSRA) which is funded at maximum annual debt service (MADS).

KEY RATING DRIVERS

SOLID DEBT SERVICE CUSHION: Recent new construction and property appreciation combined with a tax rate increase adopted by the city of Orlando last year augment Fitch's estimated coverage of MADS to 2.46x for fiscal 2016 from 1.69x in fiscal 2013. Taxable assessed value (TAV) can decline by nearly 60% or 2.3x the actual loss experienced from fiscal 2009-2013 before MADS coverage would fall below 1.0x.

CONCENTRATION RISKS: The redevelopment area spans a land area of only 460 square acres and is subject to risks associated with the retail sector and taxpayer concentration. The 10 largest taxpayers account for a very high 76.7% of TAV led by the Mall at Millenia and its anchor stores. The mall is recognized as one of the most successful in the nation but still vulnerable to changes in competitive landscape, consumer preferences, and economic slowdown over time.

STRONG LEGAL PROVISIONS: Additional debt issuance is limited to refunding purposes, eliminating leveraging risk to bondholders. Furthermore, the taxing authorities are required by state law to appropriate 95% of the incremental tax levy, regardless of actual receipts. The DSRA lends additional liquidity and protection against significant temporary TAV declines.

MATURE TAXBASE: The redevelopment area is nearly built out, limiting growth prospects from new construction in the intermediate to long term. TAV is almost entirely comprised of incremental value, which serves to lessen pledged revenue volatility typically associated with tax increment securities.

RATING SENSITIVITIES

CONCENTRATION LIMITS RATING: Very high sector and taxpayer concentration serve to limit prospects for positive rating action.

CREDIT PROFILE

The Orlando CRA is a component unit of the city of Orlando established in 1991 pursuant to city ordinance approving the redevelopment plan, which provided for the construction of an interchange between Interstate 4 and Conroy Road. The redevelopment area encompasses a small geographic area of 460 acres that is largely developed and comprised of retail establishments supplemented by some commercial properties and a limited number of apartments.

SUBSTANTIAL RETAIL CONCENTRATION

The redevelopment area exhibits a very high level of taxpayer concentration relative to other tax increment revenue bonds rated by Fitch. The top 10 taxpayers account for 76.7% of the redevelopment area's fiscal 2016 TAV. The Mall at Millenia (the mall) is the largest taxpayer in the redevelopment area representing 24.9% of TAV. The mall includes approximately 150 in-line stores and restaurants embodied within the mall, including luxury retailers Burberry, Chanel, Cartier, Gucci, Louis Vuitton, and Tiffany & Co. The mall's anchor tenants are Macy's and Bloomingdales, each owned by Macy's Inc. (IDR 'BBB+'/Negative Outlook) and Neiman Marcus. Taxpayer concentration from the mall increases to 32.4% including the three anchor stores, each of which owns its facility.

Concentration risks are moderately offset by the strength of the Orlando retail market and the mall itself, which benefits from a tourism industry that recorded more than 62 million visitors in 2014 and location on Interstate 4 approximately five miles from downtown Orlando and Universal Studios Resort. The mall is recognized as one of the strongest sales-generating retail sites in the country with retail sales per sq. ft. of $1,360 according to data compiled by Green Street Advisors. Fitch has not reviewed mall financials or rent rolls. IHS Inc. forecasts healthy growth in population, jobs, and wages over the next several years for the Orlando metropolitan statistical area. The housing market is another strong driver of retail demand and in Orlando March home prices were up 12.5% on the year according to Zillow Group and forecast to rise an additional 4.8% over the ensuing 12 months.

TAV GROWTH AND TAX RATE CHANGE BOOSTS DEBT SERVICE COVERAGE

Fitch estimates tax increment revenue of $4.7 million for fiscal 2016 or 2.46x MADS of $1.9 million. Coverage remains adequate relative to other 'A'-category tax increment revenue bonds rated by Fitch but does not sufficiently mitigate the very high taxpayer concentration risk in a manner that would allow a higher rating. Fiscal 2016 tax increment revenues are up close to $1.5 million or 45% from fiscal 2013. During this period the redevelopment area's tax base increased 31.8% to $451.7 million, nearly recapturing the tax base losses driven by the recession. The final build-out of the297-unit Estates at Millenia apartment property and Millenia Crossing mall and the addition of a new Audi car dealership are the key drivers of recent TAV growth. Future growth is expected to be more moderate as the redevelopment area is near fully built-out. Fitch estimates roughly $425,000 in new tax increment revenue based on fiscal 2016 TAV from a 1-mill or 17.7% increase in the general property tax rate adopted by the city of Orlando last year. The current tax rates for Orlando and Orange County, 6.65 mills and 4.43 mills, respectively, are comfortably below the statutory 10-mill cap.

GOOD STRESS TEST PERFORMANCE

The redevelopment area performs well against several stress scenarios designed by Fitch. Foremost, Fitch measured the degree to which TAV can decline before coverage falls below 1.0x, finding that a TAV loss of almost 59% could be absorbed without a draw on the DSRA. This stress represents 226% of the actual loss experienced from fiscal 2009-2013. A loss of the mall and its anchor tenants would result in MADS coverage of 1.65x.

SOUND TAX INCREMENT REVENUE STRUCTURE

Pledged tax increment revenues are generated from the levy of ad valorem taxes by the taxing authorities. Each entity's ad valorem tax rate is viewed as competitive to other peer cities/counties in Florida and well within the 10-mill statutory limit. Pursuant to the Redevelopment Act (Part III of Chapter 163, Florida Statutes) on or before each Jan. 1 the taxing authorities are required to deposit in the redevelopment trust fund, which is held by the city on behalf of the CRA, an amount equal to 95% of the difference between the amount of ad valorem taxes levied in such fiscal year on the TAV within the redevelopment area and the amount that would have been generated by applying the then current millage rate to the base year TAV, regardless of the actual collection rate.

The redevelopment trust fund is not pledged but the CRA covenants it shall cause all of the moneys held in the redevelopment trust fund to be transferred to the revenue fund pledged to bondholders. The CRA covenants to apply moneys held in the revenue fund, as received, to the payment of debt service coming due on the bonds on April 1 and Oct. 1 of each year before any other use. Residual tax increment revenues are required to be returned to the taxing authorities.

NO ADDITIONAL NEW MONEY BONDS

Risk to coverage dilution is tempered by the inability to issue additional new money bonds. Refunding bonds are permitted to the extent they do not result in an increase in the annual debt service requirement in any bond year. The bonds mature on April 1, 2026 which is nine months prior to the expiration of the current redevelopment plan.