Fitch Rates Jacksonville, Florida's $122.6MM Capital Improv Revs 'AA-'

Business Wire, August 2, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 2, 2002

Fitch Ratings has assigned an 'AA-' rating to Jacksonville, FL's (the city) approximately $122,595,000 capital improvement revenue refunding and improvement bonds. The bonds consist of $54,025,000 capital improvement revenue bonds, series 2002A; $42,125,000 capital improvement and refunding revenue bonds, series 2002B; and $26,445,000 capital improvement and refunding revenue bonds, series 2002C. The bonds are scheduled to be sold on Aug. 21 through negotiation with a syndicate led by Salomon Smith Barney. Fitch also assigns an initial 'AA-' rating to approximately $44 million in outstanding parity debt.

Series 2002A proceeds will be used to fund improvements to Alltel Stadium, a portion for which the city expects to be reimbursed by the National Football League's Jacksonville Jaguars, the stadium's tenant, pursuant to a lease between the team and the city, as well as to fund a capitalized interest account and a debt service reserve. Alltel Stadium will host the Super Bowl in 2005. Series 2002B and 2002C bonds will be issued as crossover refundings to redeem series 1994 and 1995 bonds, respectively. Proceeds will be used to purchase guaranteed investment contracts (GICs) from a highly-rated provider which will provide interest payments on the series 2002B and 2002C bonds until their respective crossover dates (Oct. 1, 2004 and 2005). On the crossover dates, series 1994 and 1995 bonds will be redeemed with funds derived from the GIC. The series 2002B and 2002C bonds will initially be secured by pledged revenues on a subordinate basis to series 2002A bonds and outstanding senior lien debt. On the crossover dates, series 2002B and 2002C bonds will ascend to the senior lien.

The 'AA-' rating is based on sound coverage provided by a diverse mix of pledged revenues, as well as Jacksonville's underlying credit strengths, including a diverse and expanding economy, moderate debt position, and sound fiscal position. Satisfactory legal provisions further protect bondholders. Fitch rates Jacksonville's general obligation bonds 'AA' with a Positive Rating Outlook, and rates its bonds secured by excise taxes and sales taxes 'AA' with a Stable Rating Outlook.

Pledged revenues consist of: a 2% convention development tax levied on transient rental accommodations used for six months or less; two 1% professional sports facility tourist development taxes levied for the same purpose but on a slightly larger base, including a number of beach communities and the town of Baldwin; professional sports facility sales tax rebate revenues of $166,667 monthly, derived from the state of Florida's 6% sales tax to be used for facilities for new or retained professional sports franchises; franchise fees under an agreement with Peoples Gas System (Florida), Inc., of 5%; and 15% of the discretionary communications services tax (CST), as a replacement for the communications franchise fee that was repealed with the Florida Legislature's passage in 2000 of the Communications Services Simplified Tax Act. Total projected pledged revenues in fiscal 2002 are $16.2 million, based on an estimate of the pledged portion of the CST. Based on projections, which appear conservative, all accommodations taxes comprise 45% of fiscal 2002 pledged revenues, CST revenues 38%, state sales tax revenues 13%, and gas franchise fees 4%. Pledge revenues provided an estimated 1.39 times (x) coverage for maximum annual debt service on parity bonds. The bond ordinance allows additional bonds if coverage is at least 1.35x, so Fitch does not expect pledged revenues to be further leveraged in the near future.

Pledged revenues have grown at a solid 6.4% annually over the last four years, using telecommunications franchise fees as a proxy for pledged CST revenues. In the first six months of calendar year 2002, accommodations taxes grew 1.2%, indicating notable stability relative to other areas of the state that have seen a substantial decline in those revenues. Occupancy and room rates have been stable over the last several years. Fitch expects aggregate pledged revenue growth to remain sound due to the diversity of sources and their stable performance over time, despite concerns about the expiration of the city's franchise agreement with Peoples Gas on Sept. 30, 2003. The city has covenanted to use its best efforts to extend the agreement, either with Peoples Gas or another provider, but upon termination of the current agreement the city might lose those revenues. Gas franchise fees have been the most volatile component of pledged revenues, as they are affected by gas prices, and provide only 4% of fiscal 2002 projected pledged revenues, further mitigating concerns about their potential elimination.